HHGregg's demise could help Best Buy

While it won't be as big a windfall as when Circuit City went out of business, Best Buy is expected to pick up extra business from the impending demise of HHGregg.

The question now is how much. Several retailers that sell appliances, such as Home Depot and Lowe's, are also expected to get a piece of the pie.

"The biggest beneficiary … is likely to be Best Buy, which, after perhaps some near-term pressure from the liquidation sales, should see incremental market share gains," Mike Baker, an analyst for Deutsche Bank, wrote in a research report over the weekend.

Best Buy could use the boost. The Richfield-based retailer has forecast flat sales and profits for this year as it expects another down year for the overall consumer electronics industry. HHGregg is one of it largest regional competitors.

If Best Buy were to pick up about 20 percent of HHGregg's $1.8 billion in sales in the categories in which they overlap, Baker calculated that would translate to an extra $335 million in sales for Best Buy. That, he added, "could be meaningful" because it alone would result in a 0.9 percent bump to Best Buy's comparable sales, which usually only fluctuate up or down 1 percent.

Indianapolis-based HHGregg, which sells consumer electronics, appliances and furniture, said late last week that it will liquidate all of its 220 stores. It initially planned to close just 88 after filing for bankruptcy last month. But it could not find a buyer so it pulled the plug on the rest. The stores are expected to shutter by the end of May and result in the loss of 5,000 jobs.

Best Buy has more than 1,300 stores in the U.S.

Jeff Shelman, a Best Buy spokesman, said the retailer expects it will see some customers who have been loyal to HHGregg stop by its stores in the coming months, especially those who haven't shopped at Best Buy in awhile.

"We're going to do everything we can to give them a good shopping experience," he said. "Our stores have changed a lot over the last few years."

When Circuit City went out of business in 2009, Best Buy likely picked up 20 to 30 percent of the "up for grab sales" that resulted, Baker wrote.

But Edward Dittmer, senior vice president of Morningstar Credit Ratings, noted that the landscape has changed a lot in the last eight years, particularly when it comes to the prevalence of online shopping. Some of HHGregg's sales may not go to other brick-and-mortar retailers, he said.

"Especially on that consumer electronics side of the market, you don't necessarily need to go into a store to buy a TV or computer," he said. "I've got three TVs in my house, and I didn't buy a single one in a store."

Still, other brick-and-mortar retailers do stand to benefit. Most of HHGregg's stores are concentrated east of the Mississippi in areas such as Chicago, Atlanta, Philadelphia and Washington, D.C., so stores in those areas will have the best potential to pick up the added business, Dittmer said.

"Anybody that's selling electronics and appliances has the opportunity to get some of HHGregg's customers," he said.

HHGregg was seeing declining sales in recent years as it struggled to keep up with the online age.

Consumer electronics became a smaller portion of its business, but still made up about 35 percent of its business while 60 percent came from appliances.

Last month, when HHGregg's dissolution was just hypothetical, Best Buy CEO Hubert Joly told analysts that about 20 percent of its stores overlap with an HHGregg store, though he didn't name the other retailer by name.

"You can assume that the $1 billion [in HHGregg's appliance sales] would be shared across a variety of players," Joly said.

He added that it wouldn't be transformative for Best Buy, but could boost its appliances business.

Appliances are a growing part of Best Buy's business amid the housing recovery, helping to offset the decline in smartphones and tablets. Sales of appliances now make up about 9 percent of Best Buy's sales.

But the appliance marketplace is becoming a crowded space. J.C. Penney began adding appliance showrooms to its stores last year.

The consumer electronics industry has been getting tougher for smaller players to succeed in, given that it's a declining market increasingly moving online and that is facing fierce price competition from Amazon and Best Buy. Joly told the Star Tribune in November that it's only going to be more difficult for others to play in this space.

"Amazon is raising the bar," he said in an interview. "We are clearly raising the bar. And I think it's going to become harder and harder for others to compete — because the economics are very tough. You need to be really good at this."

Another regional competitor that is still kicking is Conn's, a Texas-based retailer with more than 100 stores in the South and Southwest. It sells furniture, appliances, consumer electronics and home office products.

But its sales have also been falling.

Kavita Kumar • 612-673-4113