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Circuit City's Christmas Grinch

The Xbox saved Christmas last year. The same won't be true for electronics chains this year.

On November 5, Circuit City forecasted a loss of five cents to eight cents per share for the December quarter. In its announcement, the electronics retailer added that same-store sales for the period will show “upper single-digit” growth. But those healthy figures are primarily due to volume sales in deeply discounted staples that are less profitable, such as DVD players and notebook computers. Big-ticket spending has slowed in every category but big-screen television sets.

“The consumer seems to be migrating to the commodity end of categories and requiring more price incentives to buy,” reports Morgan Stanley retail hardline analysts Susan Quilty and Kristina Westura.

Without a strategy for filling in the gap between cheap commodities and more expensive items, W. Alan McCollough, Circuit City's chairman, president and CEO, said in a statement, “Given widespread uncertainty over the economy and consumer buying behavior, as well as the change in trends within our own industry during recent months, we believe it is prudent to adopt a more cautious outlook towards the fourth quarter as well.”

Consumers are piqued to buy new products, but the price points of these goodies are still out of reach. “You've seen the eyes light up when you talk about flat-screen TVs,” says Wendy Liebmann, president of WSL Strategic Retail. Because the better class of flat-screen and digital televisions sells for more than $10,000, however, she doesn't expect a volume sales increase until prices become competitive with clunkier big-screen TVs.

TAGS: Retail
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