Japan's Crisis Creates Uncertainty For Electronics Retailers

Date : 03/17/2011 @ 9:12AM
Source : Dow Jones News
Stock : Hhgregg, Inc. (PN) (HGGGQ)
Quote : 0.005  0.0 (0.00%) @ 4:01PM

Japan's Crisis Creates Uncertainty For Electronics Retailers

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Consumer electronics retailers are scrambling to assess the impacts that Japan's earthquake and its after effects are going to have on supplies, prices and, most importantly, demand.

Japan not only makes electronics products that go on retailers' shelves, but is also a hub for manufacturing the semiconductors that go into them, delivering a double blow as business is already lackluster in many cases.

Retailers dedicated to the products, like Best Buy Co. (BBY) and Hhgregg Inc. (HGG), have been seeing soft sales of televisions and computer supplies due to less popular innovation and more competition from the likes of Amazon.com (AMZN) and even Costco Wholesale Corp. (COST). Demand weakness is widespread, with Costco and Wal-Mart Stores Inc. (WMT) having pointed out at times that at least parts of their electronics departments were weak.

"It's too early to give indications at this point," said Kristy Reed, a spokeswoman for Wal-Mart's Sam's Club warehouse chain, said of the potential impact from Japan.

Brad Thomas, retail analyst at KeyBanc Capital Markets said he has no immediate plans to reduce earnings estimates for the retailers, like Best Buy and Hhgregg, that he follows, but he is watching closely.

"There is no question that some of the manufacturing plants were damaged," Thomas said. "There is also the issue of destroyed roads and rail routes and higher transportation costs as a result."

Camera, computer and smartphone retailers are doing their best to stay in touch with the myriad of companies that supply them with products, wondering how the devastation in Japan will impact them.

"We have been in close contact with our manufacturers in Japan," Best Buy spokeswoman Carolyn Aberman said.

There is also the issue of what may occur if other shoes drop, given the state of the Fukushima Daiichi nuclear power complex.

Already, consumer electronics retailers are looking at the prospect of delays for the products that do sell and potential setbacks for the design of the next "must-have" versions.

Japan supplies about a fifth of the global semiconductor market and is a major producer of memory chips used in smartphones. "A broad range of new products could be affected," said Paul Romano, chief operating officer at semiconductor distributor Fusion Trade.

And just like in fashion, which changes or gets tweaked from season to season, consumers clamor for newness when it comes to electronic products, already primed for the next tablet or smartphone. However, one bright side is that any delay of new products could help retailers work through current inventories without building up a backlog of older products.

As manufacturers focus on supplying orders that have already been placed, and keeping their delivery on schedule, retailers may be faced with higher costs for future orders. However, any cost increases retailers incur and pass along to customers would likely be brief given that prices for consumer electronics have been falling for some time.

If problems at the nuclear reactor continue escalating there could be more severe product supply issues that would negatively impact sales. Also, spending is highly correlated to consumer confidence, which itself is influenced by the stock market. More big declines in equity prices "could result in consumer's pulling back," Thomas said.

General economic uncertainty from the combination of earthquake, tsunami and nuclear disaster in Japan since Friday had wiped out roughly $500 billion in U.S. equity value through Wednesday.

-By Karen Talley, Dow Jones Newswires; 212-416-2196; karen.talley@dowjones.com


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