Think of "sexy retail category" and appliances aren't the first thing that springs to mind. These days, though, there's a heck of a lot of excitement surrounding refrigerators and ranges, and it all has to do with who's selling them and who isn't.
, of course, remains the appliance king, with about 38% share. And home-improvement retailer
is the No. 2, with some 6% share, according to the
. But these leaders are being challenged by
, which last month said it would expand its test of in-store large-appliance stores, as well as
, which also entered appliance retailing this year. And all of them are anxious to pick up some of the business abandoned by
, which said it would get out of the low-margin, generally flat business this summer.
It's too early to say who's going to get the lion's share of Circuit City's business, which totaled about $1.5 billion in the fiscal year that ended in February. One company that so far isn't grabbing much, however, is
, which has about 5% market share. Citing
slower demand and price competition, the consumer electronics retailer said Thursday it won't meet earnings expectations for both the fiscal third and fourth quarters.
One of the many disappointments that emerged on the company's conference call with investors and analysts: It has seen no pickup in business from Circuit City's departure. "We've not gotten the kind of gain we would have expected," Best Buy CEO Richard Schulze said on the call. Nor has there been a margin lift. "We're doing everything we can," he said.
Cooking Without Gas
Scot Ciccarelli, an analyst with
Gerard Klauer Mattison
, said that because Circuit City just recently finished getting out of the appliance business, it's really too early to look for any kind of a sales boost. But he doesn't expect Best Buy to make headway. "It will be very, very difficult," he says. "When Wal-Mart, Home Depot and Lowe's put their minds to it, it's hard to beat them." (His firm hasn't done underwriting for Best Buy.)
Wal-Mart started testing sales of
appliances in one Texas store, then said last month it would expand to 100 stores by the spring. The stores display only about 15 appliances, but have kiosks for ordering another 45 models.
Home Depot, meantime, has expanded its
Expo Design Center
to virtually all of its stores, says spokesman Jerry Shields. Why get into a tough business? "Our customers told us that when they needed appliances they wanted to buy them at Home Depot," he says. He won't give market-share figures, but says the business is "going very well."
What Could Be Better?
Where does this leave Best Buy? Aram Rubinson, analyst with
, says the unit has been under review for a while. (A spokeswoman for Best Buy said the chain wasn't currently considering exiting the business.) Rubinson wouldn't mind seeing Best Buy get out of appliances entirely, as long as it replaced the lost sales with something better. (Rubinson rates Best Buy a strong buy, and PaineWebber hasn't done recent underwriting for the company.) In the last fiscal year, appliances made up about 8% of Best Buy's sales.
That may be tough right now, since there's no other category that's screaming to be expanded. Best Buy said today that the slower economy is cutting demand across the board. Meantime, once-novel items like DVD players are now becoming commodity products, subject to price competition. The great promise for Best Buy and other consumer electronics chains are products like HDTV and digital video recorders, but mass adoption of those is still a ways off, says Ciccarelli.
That means that for now, Best Buy has little choice but to keep fighting the appliance battle with Wal-Mart, Home Depot and Sears. A sluggish category is looking plenty interesting.