Circuit City stores could reopen

Systemax has relaunced CompUSA and could bring Circuit City stores back online, but weak consumer spending may sink the effort

By InvestorPlace Mar 26, 2010 11:05AM

retail stocks to buySystemax (SYX), owner of the online electronics clearinghouse Tiger Direct, is jumping into the brick-and-mortar retail game. That’s a bit of a surprise, since this may not exactly be the economic environment to make a big push into any segment of retail.


But the real shocker is that Systemax is making the move under two defunct big box brands: Circuit City and CompUSA.


Systemax scooped up the remains of Circuit City last year for $14 million. This was its second big-box electronics bailout, after it purchased 16 CompUSA locations in 2008 as well as the brand, trademarks, e-commerce business and technical services for about $30 million.


Apparently banking on a continued uptrend in consumer spending, Systemax is opening CompUSA stores in Houston, Chicago and other major markets after successfully testing the concept in Florida. And after relaunching Circuit City as an online retailer akin to Tiger Direct last summer, execs are excited about the prospect of re-opening some shuttered locations to peddle (AAPL) iPads, AppleNintendo (NTDOY) Wiis and Panasonic (PC) HD-TVs.

A recent report indicates that Apple's iPhone could be a lot bigger, and this would be a way to share in that success.

Or the rebirth of Circuit City and CompUSA may be part of an effort to get a piece of the pie that Best Buy (BBY) has enjoyed in recent months. Best Buy’s strong quarterly earnings report this week boasted a 12% jump in revenue, and for the year ahead Best Buy projects an increase in same-store sales of 1%-3%.


But if Systemax thinks it can share in this success, it better crunch the numbers carefully. Part of the reason for Best Buy’s success has been simply due to the vacuum in the market after Circuit City went under -- and with a crowded marketplace again, the result could be lower profits and sales for both operators. Another retailer in the space may just mean that the sales are divided, not shared. Other big-box stores like Wal-Mart (WMT) and Target (TGT) have  had slow going lately in their electronics departments, so there may not be that much upside left in this retail sector.

Similarly, in an era of weak consumer spending the race to the best deal could undercut margins for both companies and make it harder to turn a decent profit. As Systemax-owned stores fight with Best Buy for the lowest price, the net result could be that nobody wins.


It would be nice for consumers to have more options for their electronics shopping, but Systemax must move cautiously as it re-enters the brick-and-mortar business with CompUSA -- and perhaps consider pushing back a Circuit City reboot until the environment is a little less hostile.


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