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Tickers in this Article: BBY, RSH, WMT, TGT
Well-known electronics retailer Circuit City recently reported its decision to liquidate. Simply put, the news comes as an obvious disappointment to the company's thousands of employees. Further, Circuit City's most recent woes serve to underscore the difficulties in the retail sector.

Beyond the doom and gloom, one party may be happy about the liquidation. And that is Circuit City's arch rival, Minnesota-based electronics giant Best Buy (NYSE:BBY). Let's take a look at the potential benefits for Best Buy.

Short-Term Benefits
Circuit City filed for bankruptcy in November as a result of declining sales and significant second quarter losses. In short, consumers may have migrated to Best Buy in an attempt to avoid the troubled Circuit City.

Circuit City will host a giant liquidation sale in which its 567 remaining stores will unload merchandise at bargain basement prices. In addition, the company will honor gift cards during the liquidation, so customers most likely will use up their gift cards as soon as possible. Finally, per the Circuit City website: "We expect the sales to wrap up by the end of March 2009."

Much attention will be placed on Circuit City during the next few months as penny-pinching consumers flock to the remaining stores in search of bargains. Therefore, Best Buy most likely will not see an immediate surge in business. (Be sure to check out our Economics Basics Tutorial to learn more about competition and how it affects businesses.)

Long-Term Advantages
Once Best Buy becomes the last electronics retailer standing, it will likely benefit from the influx of customers who previously shopped at Circuit City. But Best Buy has other positive things going for it, too. First, the company reported in its second quarter earnings release a store count of 973 locations, which gives the company a strong footprint in the marketplace. In addition, Best Buy posted an increase in sales and recorded a profit during the period. Finally, Best Buy provided guidance for fiscal 2009, which amounts to earnings of $2.50 to $2.70 per share (excluding items). (Explore the controversies that can surround companies' forward-looking statements in Can Earnings Guidance Accurately Predict the Future?)

Although Best Buy is steadied by its size, solid financial results, strong projections and the demise of Circuit City, it is not without competition. The slowing economy lures consumers to discount retailers like Wal-Mart (NYSE:WMT) and Target (NYSE:TGT), which also sell flat screen televisions, video games and other gadgets. In addition, if history is any indication, Wal-Mart could try in some way to fill the void left by Circuit City. Wal-Mart hinted at its future aspirations in a June 2008press release that stated: "[The company] has completed a redesign of its consumer electronics department in stores nationwide, adding hundreds of new consumer electronics models and features. In addition to new product assortment, recent design changes intend to help Wal-Mart customers also better understand the uses and options of many new products in the market, such as the addition of a 'hi-def Blu-ray experience area' in 1,200 of its stores."

Radio Shack (NYSE:RSH) is not as big of a threat as Wal-Mart, but it also deserves a mention because it could receive a slight sales resurrection following Circuit City's collapse. However, any boost probably will not be enough to serve as a real threat to Best Buy. Best Buy's real threat will be Wal-Mart.

Bottom Line
Circuit City's liquidation is bad news for employees and investors. But Best Buy will reap the benefits of its rival's demise once the sales are over.

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