Consumer Electronics Sales May Not Be as Bad as Data Suggest

The release of the US Advanced Montly Sales Report once again showed worsening trends for Electronics and Appliance Stores. Seasonally adjusted sales were down 13% in May, which was worse than last month's 11% and significantly below a temporary peak in January with a 0.6% decline. While I do believe industry sales have slowed this Spring due to the highly discretionary nature of purchases this time of year, I also believe this report is overstating the decline for the consumer electronics (CE) industry as a whole, and especially individual retailers, due to the impact of the Circuit City bankruptcy and sales absorption by chains outside the Electronics and Appliance Stores' division

Based on Circuit City's reported sales and US Advanced Monthly Sales Report, I believe CC made up approximately 8%-10% of Electronics and Appliance Store sales through 3Q08. As its business began to wind down, CC's sales decline has acted as a major drag on this category of the Advanced Sales report. While some of Circuit's customers have likely gone to Best Buy and other CE retailers, presumably a large portion have gone to Wal-Mart, Costco and other retail establishments whose sales are reported under the General Merchandise Category of the Advanced Monthly Sales Report. Based on data provided annually from TWICE magazine, only about 55% of CE industry sales go to national and regional CE retailers. Applying this ratio to get an adjusted Electronic and Appliance sales change yields flat sales in February, falling to only a 9.3% decline in May.

Looking at specific CE retailers, the sales results are likely much better. Best Buy, for example, could have seen declines since February that are 1.5%-2% less than this adjusted decline sugguests, assuming it maintained its roughly 20% market share.

Clearly, your assumption on what percentage of sales are going to Wal-Mart, Best Buy, Target, HH Gregg or others has a major impact on these rates. But I believe it's safe to say that sales for CE retailers are in general doing better than the sales declines for the Electronics & Appliance Retail category of this Census Bureau report could lead you to believe.

	Elec & Appl Retailers*	Est. Impact From CC Demise	Assume 55% Reabsorbed	Adj. Elec & Appl Retailers	BBY @20% Absorption
Jan-08	1.3%
Feb-08	0.9%
Mar-08	2.2%
Apr-08	3.6%
May-08	4.8%
Jun-08	5.3%
Jul-08	3.1%
Aug-08	-0.7%
Sep-08	-2.1%
Oct-08	-4.4%
Nov-08	-6.9%
Dec-08	-10.2%	-3.6%	2.0%	-8.6%	-7.9%
Jan-09	-4.6%	-1.2%	0.7%	-4.1%	-3.8%
Feb-09	-0.6%	-1.2%	0.7%	-0.1%	0.1%
Mar-09	-9.8%	-8.3%	4.6%	-6.1%	-4.4%
Apr-09	-11%	-8.3%	4.6%	-7.3%	-5.6%
May-09	-13.0%	-8.3%	4.6%	-9.3%	-7.7%

*Change in seasonally adjusted sales from US Dept. of Census Bureau data

Disclosure: Author has a position in Best Buy

Comments

[billddrummer:]

There's good evidence that a lot of the higher end sales that CC formerly captured have migrated to online retailers, principally AMZN. Mid-tier and lower consumers migrated to WMT.

Jun 12 12:49 PM

[billddrummer:]

A codicil:

That tends to mute the impact on BBY, since at the outset, many people thought that BBY would capture the lions' share of CC sales. As is evident, that hasn't happened.

One wonders if displaced CC customers will ever go back to a purely CE bricks and mortar operating model. It didn't work for them when the company was around, and it doesn't seem that their absence has translated into markedly higher sales for the remaining outlets in the sector.

Jun 12 12:51 PM