It’s a price war. The only problem is, it’s not here-for now.
The country’s two leading consumer electronics and appliance chains, Circuit City Stores, of Richmond, Va., and Best Buy, of Minneapolis, are headed for a showdown over who will dominate the market.
While consumers in Atlanta and Phoenix may be in for a bonanza, the stock market objected in emphatic terms.
Best Buy’s stock plummeted 10.1 percent Thursday when analyst David Childe, of Johnson Rice & Co., said the two were on the verge of war in Atlanta and other markets where they compete.
Best Buy’s stock dropped another 8.9 percent Friday when Donaldson, Lufkin & Jenrette lowered its near-term rating on both Best Buy and Circuit City to “neutral.” Best Buy closed the week at $49.63 a share on the New York Stock Exchange.
But the stock of its rival also was taking its lumps. It was down 2.6 percent Thursday and fell another 4.1 percent on Friday, closing the week at $26.
“It looks like (a price war in) Atlanta and Phoenix. We don’t know about Chicago,” said Lorie Bauer, a spokeswoman for Best Buy.
She said Best Buy’s response will be simple.
“If Circuit City initiates it, we will match them,” she said. “And I think they’re starting it.”
Circuit City, however, was saying it isn’t starting anything.
“There is essentially no change in our pricing strategy,” said Anne Collier, Circuit City’s director of financial relations. She said it is Best Buy that is aggressively marketing its products in Atlanta, where it recently opened five stores.
“The analyst’s report was generated by the fact they have entered the Atlanta market, the first of our established markets they’ve entered,” said Collier. “We are lowering our prices there to (protect our market share).”
Edward Underwood, an analyst with Scott & Stringfellow Co., in Richmond, said a price war in one or two markets isn’t significant.
“If it expands beyond there, you have to look at where they compete,” he said, adding that Chicago is the next likely battleground. Circuit City began opening stores in the Chicago area in September and will finish the rollout of those 18 stores by the end of next week.
“You have to say Circuit City has a little more profit going into the battle,” said Underwood. “But long-term, you have to stop and think what the consequences will be. With lower operating expenses, Best Buy is pretty well-positioned.”
Childe, who started the speculation, said he expects Circuit City will begin lowering its prices to cost on key items.
“In this industry, some products are sold at cost. They have been sold at cost in the past and will be sold at cost in the future,” said Circuit City’s Collier, declining to say whether the company was preparing to drop prices to cost on many items this weekend.
