Just days after shoe chain Payless filed for bankruptcy, the U.S. retail sector took another hit over the weekend when HHGregg announced it would be closing its remaining 220 stores by the end of May. While the closings will trigger another 5,000 retail sector layoffs, HHGregg’s demise could be a positive for rivals such as Best Buy Co. (ticker: BBY).
HHGregg filed for bankruptcy in March, but reportedly had discussions with more than 50 firms about a possible buyout in the weeks that followed. On Friday, HHGregg announced it would be abandoning its search for a buyer and liquidating its remaining stores.
According to Deutsche Bank analyst Mike Baker, the HHGregg closings are good news for certain competitors.
“The biggest beneficiary of this news is likely to be Best Buy, which, after perhaps some near-term pressure from the liquidation sales, should see incremental market share gains,” Baker says.
Baker estimates Best Buy could gain up to 20 percent of HHGregg’s market share, which translates to roughly $335 million in sales. The 20 percent projection represents the low end of the estimated 20 to 30 percent share Best Buy gained when Circuit City closed in 2009.
HHGregg’s closing is far from an isolated incident within the U.S. retail sector.
The day HHGregg announced its decision to liquidate, the U.S. Labor Department reported that the national unemployment rate fell to 4.5 percent in March, its lowest level in a decade. However, the retail sector has lost 61,000 jobs in the past two months, its worst two-month stretch since 2009. Brick-and-mortar retailers are closing stores and trimming payroll in an effort to compete with digital competition from Amazon.com (AMZN) and other e-commerce retailers.
In addition to Best Buy, Baker says Home Depot (HD) and Lowe’s Companies (LOW) could also “pick up a couple hundred million dollars in share” from HHGregg’s appliances business.
While market competition is shrinking, the path ahead for Best Buy and other brick-and-mortar retailers remains…
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