Tuesday, October 21, 2008

Who's Next?

Good morning. Looks like Circuit City shorted out before Best Buy and they are choosing the Mervyn's/Linens'n'Things model for dissolution.
Reuters article.
The company's advisers are trying to line up additional financing but so far lenders have shown little interest, the paper said.

"The management team, board of directors, and its strategic financial advisers are conducting a comprehensive review of all aspects of our business to determine the best methods of accelerating our turnaround," Circuit City spokesman Bill Cimino told the paper without giving details of the plans.

Let the Mauling of America commence. Yes we need half the retail space we have but the potential danger is in serial failure. How'd you like to be Best Buy? At first blush you are losing a competitor but what about selling this holiday season into the teeth of a recession with CC going through the 25%-60%-90% final sale clearance cycle? And let us not forget the problem of real estate. You remember, real estate. These stores who aggressively expanded have very high cost basises that don't go away just because they close a store. In the cases where the own the footprint they'll be forced to mark to market and undoubtably trigger loan covenants. They in turn will take down strip owners and often municipalities who also invested in the hopes of covering their costs of infrastructure with sles and property taxes. Oooops. And just like CSI and CSI: Miami and CSI:NY there's even a theme song. No, not "Who's Next?" rather "The Song Remains the Same."

34 comments:

Aaron said...

first, murst etc.

Peripheral Visionary said...

Retail is not going away, but the question of who (ha!) the winners and loosers™ will be is a fascinating one. My initial take is that the winners will be small, locally owned retailers--they have much more flexibility on labor, more flexibility on leases (many of them know the landlord, or are the landlord), lower inventory, and can run very lean operations to make it through the downturn. The big boxes that survive will be capital constrained and will not have full opportunity to take advantage of each others' failures, and so it is the previously oppressed locals who (ha!) will pick up some of the volume.

Also on the potential winners list: new retailers. Again, they have flexibility in labor arrangements and lease arrangements, as they're hiring and leasing from scratch, and they can pick and choose prime locations. The main issue they face, of course, is financing expansion; but for those with solid cash flows, they can finance their own expansion, albeit at a slower pace.

Another point: inventory will be a ball and chain on the big box retailers. The extremely high inventory turnover rates of prior years will be disappearing this year during The Christmas That Wasn't, and the big boxes are going to be loaded up with way too much inventory that racks up inventory maintenance costs even as it becomes outdated. Another point in favor of small retailers and new retailers.

Do I even need to mention car dealerships? If you want to see why the big inventory, big volume model is heading toward extinction, look no further than your nearest car dealership. Enormous financing costs, huge property leases, mobs of salespersons, and inventory that nobody wants and that depreciates by the minute. I suspect the winners in the car dealership market will be the European-style dealerships: as in, the small office on a main street that comes complete with one salesperson and a stack of shiny brochures that show you what your car will look like when they deliver it.

Lex said...

What's up with the 60's rock references lately? Elderly relatives visiting?

Anyway, the perfect theme song is from CSI (Baba O'Riley) -- just change "teenage wasteland" to "retail wasteland." Save Won't Get Fooled Again for the really big stuff.

Rob Dawg said...

Lex said...
What's up with the 60's rock references lately? Elderly relatives visiting?


Talkin' bout my generation?

Rob Dawg said...

PVs excellent post from the previous topic. A not to be missed missive.

Off topic, but I thought Rob might be interested . . .

Baroque or simply broke? Money woes hit art market

Wait, let me guess . . . no mention of speculation on heavy leverage, a quick dismissal of the suggestion that this might be a bubble, a cheerful mention of bargain-hunting, the usual "froth going out" phrase, and, inevitably, the trademark "things getting back to normal" phrase.

A week of slowing sales and sagging prices suggests the global financial meltdown has finally ended the art-market boom that saw paintings and sculptures become must-have commodities for the world's elite . . .

"A lot of the froth and hype has gone from the contemporary market," Melanie Gerlis, art market editor of The Art Newspaper in London, said Monday.

Art world observers have been predicting a crash since the U.S. subprime mortgage crisis began rippling around the world. Many of the buyers driving the art world sales frenzy were hedge fund and private equity millionaires — among the first to suffer as the credit crunch took hold.

But prices stayed high, thanks in part to Russian and Middle Eastern buyers who were insulated from the worst of the economic woes . . .

"I do not look at the marketplace ... as in any sense frozen or not moving forward, be it with some price adjustments, because that's what's happening. There's a price adjustment going on in a number of categories where there's been big price appreciation," Ruprecht said.

He added that the demand and interest from the United States was "a surprise to us" and that some longtime collectors, particularly in the U.S., see the falling prices as an opportunity to find a bargain.

Christie's said the last few weeks had shown that prices for artworks were "finding a new level," but added it remained "cautiously optimistic" about upcoming sales . . .

Some galleries even said they were glad to see the end of the feeding-frenzy atmosphere.

"It is nice that it's going back to normal and that it's time to talk about art again, instead of investment," said Claus Andersen of Andersen's Contemporary in Copenhagen.


You know, it's almost as if I've heard this all before.

Jean ValJean said...

The unseen SNL skit

Property Flopper said...

Anyone watching Casey's latest manic phase? (He's switching MUCH faster now, that's a bad sign).

He realized that no comments = no hits, so he's restarted them, but under moderation and ONLY if they're positive and constructive. A bunch of the regulars are making "constructive" comments that are getting through - the poor fool can't even figure out which ones are mocking him.

He's also banned all discussion of his family and his finances. He no longer wants advice (and claims he never asked for it). Apparently it's OK to say "way to go Casey" or to suggest his e-book is going to be great, but that's about it.

Pathetic.

Peripheral Visionary said...

Thanks Rob; but it's not much by way of news, you could swap out "art" for "homes" and stick a 2007 timestamp on it and it'd be the same article that we've seen many times over.

Also, on that particular subject, I would submit that Damien Hirst's artwork is the San Diego of artists; not the first to fall, but when the fall does come, what a fall it will be. Of course, it's not a perfect comparison, as some people actually like San Diego. I understand that some of the highest dollar purchases of Hirst's works were actually by himself, financed by outside loans. That's an amazing trick--line up financing, purchase your own works at inflated prices, and stoke an artificial speculative hysteria that drives your prices even higher. Nope, no leveraged speculation in the art world, none at all . . .

Peripheral Visionary said...

Sadly, the Casey train wreck holds little interest for me. All the entertainment of watching the train crash has ended, now it's just a Homeless Dude™ with a murse poking through the wreckage looking to salvage anything of value. Yawn.

Property Flopper said...

PV - It's kind of like a soap opera: Unbelieveable characters doing stupid, pointless things day after day. The stories are so exagerated for drama and, if exposed to even a little common sense, would be non-issues.

The stories go on day after day and never resolve. The folks watching hate themselves for doing so and rarely admit it in public, but also don't miss an episode.

It's addicting. Sad, but true.

Peripheral Visionary said...

I do have to admit that Goldspring's EDGAR filings were good for a laugh. You can't make those kinds of numbers up.

Rob Dawg said...

PV,
GSPG.OB is massively entertaining. I am considering a joke investment. At 1.25¢ a hundred thousand shares is $1,250. I'm betting on a few spontaneous deathgasms in the next few weeks. Wouldn't it be fun to grab some sub-penny shares and bail at 2¢ a few days later? I know, not investing but I don't have many scruples vice gambling except for government participation in the business.

Those EDGARS are as you note immensely entertaining. There was one a few weeks ago about a million in loans rolling over again. IIRC one from 3 years ago overdue. The lender is probably thinking they want nothing next year rather than nothing this year.

Northern Renter said...

OK, I went and looked at the latest comments on KC's site. The only one that really amused me was when KC claimed that the banks (presumably by employing leverage) only loaned him fake money and then they seized the real assets. Thus they are the real scam artists. He, on the other hand, was the big loser apparently even though he hadn't any skin in the game.

Were he a mohel, I shudder to think about him deciding which part to throw away.

NR

Property Flopper said...

"He, on the other hand, was the big loser"

That part is quite accurate. Casey IS a big loser.

Mike said...

Casey has gone crazy! Have you guys seen the utter delusional crap he is spewing over there. He honestly now believes that he is the one who got scammed, revolution is on the way and the end of the world is near. That Mastercleanse really f*cked him up. Cleansed a fair amount of the limited brain matter he had

Property Flopper said...

Ouch. This has gotten past the point of fun. CS has always been a sucker and will fall for any half baked idea someone puts in front of him, but he's really gone over the edge if he actually believes this stuff.

Of course it's either that or he is simply trolling for a response - but that's almost worse. Given his financial situation, wasting this much time just trolling is insane.

WeWantTheFunk said...

It warms my black heart to see Circuit City circling the bowl. I got a really horrible car stereo install from them in 1989 (looked and worked like it'd been done with a fire axe), was never able to receive satisfaction, and I have not darkened their door since, taking all my custom elsewhere. This is a sweet thing to watch.

On another front, Serin is now officially off the deep end. Everything you learned in school and in the news is wrong; everything on YouTube is correct. The whackier, the better.

Since he only allows happy, supportive comments, haterz are communicating their true opinions via acrostics, which he fails to notice.

Jean ValJean said...

@WWTF:

Reminds me of my story. To fully understand this, you must know what I'm not anglo:

Many years ago, in my 20's, I went to a Circuit City, because, I'm a geek, and I like browsing at electronic stores. This was in North Texas. Well, I had never been followed in a store, until that day. I was being chased by one employee. I couldn't believe it. I must be imagining it, I thought. So I walked around a bit. Never moving quickly, or behind anything. Just moving from software to TVs at a normal pace. Sure enough. I was being followed. I guess I looked more like a thief than I knew. I remember just before I left, I stopped in one aisle, pretending to look at an item. The employee trailing me quickly ended up on the same aisle, pretending to organize the impeccable shelves. My eyes bore a whole on the side of his head until he peeked to see what I was doing. It seemed to catch him by surprise that I was staring at him, and he went back to organizing the organized shelves.

I went back to school that fall and I told my story to a fellow student who worked at an electronics store (Computer City) and he pretty much verified that they probably thought I was going to steal something.

I have never set foot in a CC since then.

Looks like I never will again.

tk said...

The whole KC thing just turned sad. I was enjoying the train wreck and felt guilty about that, but now I feel sorry for him and can't even enjoy the site anymore. My wife has a relative with schizophrenia and his behavior looks so familiar. It's manifesting itself at the same age, too. Sad, sad, sad. He really needs medication. I hope his family gets him in the hospital soon.

Pleather Murse said...

I find CC annoying. The stores have blaring music which is very distracting when you're trying to look for a certain item and want to concentrate on the task at hand. I haven't been followed as such in there, but they apparently have some irritating employee policy where they MUST greet every customer even if another employee (umm, "associate," lol) just greeted you a minute ago. "Hello, can I help you find anything?" - Not right now, thanks. Two minutes later, another associate. "Can I help you find anything?" NO, just looking thanks ... aaargh.

This constant greeting thing (not to mention the idiot greeting you at the door as you enter) is as much an anti-shoplifting measure as it is a p.r. measure. They figure if people know they're being paid attention to all the time they're less likely to steal shit.

Pleather Murse said...

KC: "I guess I’m just one crazy truther. I was holding it back before, but things are starting to accelerate and everything is moving WAY too fast. I want to sleep well at night that I did my part to warn YOU. I care."

Lab Dog™ said...

Casey's insane, anti-Obama "truther" BS is a win-win for the Arugula Party. Itsallgood.

Lou Minatti said...

Casey's in the bunker now. The Russian forces are hours away.

Perhaps it's time for Mom and Dad Serin to go pick their son up.

w said...

Oh Boy! A CC going out of business sale. I love these things. I will remember the 2000's for the sales at Good Guys, Comp USA, and now CC. Perhaps the next decade will extend the party with Best Buy and Fry's. I was there on the last day at Good Guys and Comp USA and all along the way.

Maybe the stimulus check will get here soon.

Rob Dawg said...

Fry's is a private company that basically prints cash. They aren't going anywhere. Besides how much better than $3.99 DVDs and $100 terrabyte drives do you want?

I've already got lots of computers, two plasmas and 500+ DVDs. I'm consumed out. Like I said, when it gets to 90% off I might get a new shower curtain.

Lost Cause said...

I must be getting old. I can't tell whether I am in Circuit City, Fry's, Best Buy, Office Depot or OfficeMax. Do we really need so many stores, with exactly the same prices on the same stuff? They all get their junk from the same place: China. They are all the evil spawn of Wall Street. Let's have a riot, and get it over with already.

Likkered Up said...

Casey's last two posts seem different than typical Manic Casey. When he rambled at IAFF he usually stayed on track. Now he's more like Blabbering Drunk Casey. Or maybe Uppers With a Few Downers to Even Me Out Casey.

IIRC BB did a 2.5 billion dollar stock buyback in 2007. Bet they wish they had that money now.

H Simpson said...

Bizzare

They just opened a CC less than 2 weeks ago in the next town. I mean it is not even formally opened yet.
The bushes have not been planted in front of the store.

What kind of mgt continues to open stores knowing they are in trouble?

The free credit party has caused some serious behavioral problems.

h.

w said...

Regarding Fry's: Is there any proof they are printing cash? The store is HUGE, prices are low, there is always at least 10 employees standing around a desk doing nothing, and they must have 80 people working.

Granted there is always someone in line but that argument applies to Best Buy as well. Going section by section:

I see thousands of magazines but does anyone make money selling magazines any more or is it just leased space?

I see a lot of appliances that no one is ever buying. I see a lot of floor space for tv's but someone tells us that Costco has taken the bottom out in that business.

I see a lot of videogames but generally they are no better on selection or price than any other store. Of course they seem to give away the margin on the games in their fliers occassionally, beating the competition by $10-20 on a popular computer game in the flier.

They have a nice section for electronics geeks but really how big is this market?

Finally, the DVD section is pretty comprehensive but I bet the bulk of the movement is the cheap sale stuff. That is what I go there for. How can they beat Costco on price so dramatically on new releases? How has giving away DVDs helped CC and Best Buy?

The future is small.

Pleather Murse said...

Re: telling them apart.

CC is red and noisy with irritating salespeople who bug you every two minutes. BB is blue and bright and less noisy with salespeople you usually have to ask if you want help. The office stores have furniture and (in the case of Staples at least) no salespeople to be found, you could stand in the pencil aisle half an hour trying to make up your mind between a UniBall and a Bic and no one will disturb you.

Fry's is humungous and has a checkout area that doubles back on itself several times like the ticket windows at a football stadium. Most of the display cameras in the photo section are broken or obsolete (Hi-8 anyone?) Fry's also has the terrific "theme" motif. The store in Burbank has a large flying saucer crashed into the ceiling with little aliens around it; one store in Phoenix is designed like an Aztec temple. I kid you not. Hey, kids love it.

Dolph said...

Frys makes money I promise you. They sell a lot of stuff that they get on closeout from manufacturers. Look around a Frys and you will see namebrands but the models are always "last year's".

They do very well in music and DVD. They don't music direct so they get sweet heart deals from the supplier they use. DVD is the same deal I believe. Video games is a low margin business to begin with. FYI - A $59.99 video game wholesales for $46-$51 depending on whether you buy direct from the game company or a 3rd party wholesaler.

On the flipside a $29.99 list DVD wholesales for anywhere between $16-$19 depending on your buy. A $13.99 list CD can wholesale for $7.50-9.99 depending on the label or where you buy it. I included max deals on the lowest price so IF Fry's turns enough inventory (they do according to friends I know that sell to their main supplier) they can make money buying in bulk and on deal.

Dolph said...

BTW - Casey is losing it. He's stuck on politics because nobody is buying that e-book and nobody CARES about his "business acumen." He's going to shove his opinions down our throats because he knows that will still get him the attention he craves.

Pleather Murse said...

What is it they say, politics and religion is the last refuge of the scoundrel? The entry barriers are pretty low as are the quality standards. I actually think KC would make a good preacher/fringe politician. No need for facts on your side, just keep pushing the message and hitting people's emotional hot buttons.

w said...

Interesting info Dolph.