Sunday, January 18, 2009

Circuit City, R.I.P.

Not that folks who read TPMtoday don't already know, but just for the record: Circuit City is closing down. The first thing to do is to offer best wishes to the 30,000 people who will be losing their jobs.

Beyond that, it is time to reflect again on the narrowing of distribution channels. A few years ago, the toy channel consolidated down to only Toys R Us (and Walmart), and now consumer electronics (which lost CompUSA and Tweeter in 2008) consists of Best Buy (and Walmart).

Here's a post from early 2007:
I've often advanced this theory (as have others), which says that we are moving toward a retail landscape in which there will be only two significant outlets in each channel. I've used as examples:
  • Best Buy/Circuit City
  • Home Depot/Lowe's
  • Barnes & Noble/Borders
  • Target/Wal-Mart
  • Kroger/Super-Valu
  • etc.

There are a corollary and a variant to this theory. The Manufacturers’ Corollary holds that there will be only two suppliers in each product category. The logic behind this is that suppliers will have to be large enough to deal with the retail giants, and is supported by the tendency of the retailers to want to improve efficiency by winnowing their supplier base. Supporters of this corollary point to P&G’s acquisition of Gillette. They argue that P&G was already bigger than its competitors, so the acquisition was not intended primarily to strengthen their hand vis-à-vis Unilever, but rather its purpose was to allow them to sit at the table with Wal-Mart as equals.

Which brings up the Wal-Mart Variant to the Two-Per-Channel Theory. It holds that the final two in each channel will be:
  • Best Buy/Wal-Mart
  • Home Depot/Wal-Mart
  • Barnes & Noble/Wal-Mart
  • Target/Wal-Mart
  • Kroger/Wal-Mart
  • etc.
It's certainly beginning to look like the betting should be on the Walmart Variant.

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