Circuit City's Demise Not Lifting Best Buy Yet

Many industry watchers expected Best Buy stores to get a major sales boost after the demise of competitor Circuit City early this year. That's not the case so far, though.

Best Buy's second-quarter results were far from stellar. Same-store sales fell 3.9 percent during the period, while net earnings came in at $159 million, down from $202 million in last year's second quarter.

The retailer didn't turn in a terrible quarter, however, and actually saw increases in the sales of flat-screen televisions, cell phones and computers. (Gaming, appliance and cameras all saw declines.) And Best Buy CEO Brian Dunn said during the company's earnings call that market share is on the rise. "So far this year we've gained more domestic share in our space than anyone," he said.

But isn't that to be expected when your main competitor closes more than 700 stores in a year? And it begs another question: If Circuit City were still around, would Best Buy suffer more?

The main problem that Best Buy is facing probably isn't a lack of market share; it's the recession. With rising unemployment and a continued downturn in consumer spending, the last thing we're going to see any time soon is an increased demand for non-necessity electronics.

Another problem Best Buy faces is competition from Walmart and online retailers that are trying to grab some of those former Circuit City customers and could already better command their attention right now due to perceived lower pricing. But as Best Buy CFO Michael Muehlbauer was quoted in Dow Jones Newswire, "Customers that shopped Circuit City are more predisposed to wanting more help. They were making the conscious decision to not go to Wal-Mart of Coscto or the online players."

That might be the case -- if those customers are going anywhere to buy electronics nowadays.