Circuit City Plans New Push in Price War : Retail: Electronics will get cheaper as competitors follow suit. Stock prices reflect fears of thinning industry profits.
An escalation of the price war among consumer electronics retailers loomed Thursday, after Circuit City Stores Inc. said it plans to slash prices and boost promotions in major markets nationwide in the coming months.
Meanwhile, Circuit City’s main competitors in Southern California vowed to match or beat the cuts.
The nation’s largest consumer electronics retailer said it will begin the program, aimed at increasing its market share, by early March. Also, the company said it will continue with plans to open 180 new stores in the next three years, adding perhaps three stores this year in Southern California alone.
But Circuit City appears to be facing a tough fight, especially in the highly competitive Southland market.
“If Circuit City lowers its prices, we would respond to the cuts,” said Robert Gunst, president and chief executive of Good Guys Inc. in San Francisco. “We would not allow our prices to be higher than a competitor’s.” Gunst said Good Guys hopes to open 10 to 12 new locations in Southern California.
In addition, Best Buy Co., Circuit City’s main rival, appears poised to enter the Los Angeles area with new stores. A spokeswoman said the Minneapolis-based company, which operates primarily in the Midwest, is considering California in its plan for adding 40 stores this year.
While buyers of stereo sets and VCRs stand to benefit from the stiff competition, investors concerned about the industry’s ability to turn a profit triggered a slide Thursday in the stock prices of consumer electronics retailers.
Circuit City, citing its aggressive expansion plans, predicted its earnings will be flat in 1994. The price of Circuit City shares fell $4.50 to close at $17.625 on the New York Stock Exchange.
The weakness in Circuit City’s stock also caused a $7.50 plunge in Best Buy’s shares to $39.75 on the NYSE. In Nasdaq trading, Good Guys stock lost $1.50 to close at $12 a share.
All three companies announced improved sales for December. Circuit City said its same-store sales--those at stores open at least a year--rose 8%. Its total sales were $713.8 million for the month, up 25% from December, 1992. Best Buy said its same-store sales were up 38%. And Good Guys saw sales at stores open for a year or longer jump 12% from the year-ago period, to $211 million.
Analysts said Circuit City and Best Buy are locked in a bitter battle in Chicago, St. Louis, Ft. Worth and other cities.
“They will continue this fight for market domination until somebody cries uncle,” said Monroe H. Greenstein, an analyst at Lazard Freres in New York.
Smaller chains may become the first casualties in the fight between the two big competitors, analysts said. In Southern California, Leo’s Stereo has gone out of business and Philadelphia-based Silo reportedly plans a major retrenchment. Silo officials denied reports that it will close all of its Southern California stores, but it would not comment further.
