Fifth Avenue duel: Best Buy vs. Circuit City

NEW YORK -- Consumer electronic rivals Best Buy bby and Circuit City cc are battling head-to-head in Midtown Manhattan this holiday season.

The duel was set up when Circuit City threw a grand opening this month for its new store on Fifth Avenue, just a step away from its rival.

Although Best Buy is the consumer electronics front-runner, Circuit City didn't shy away from its foe. Instead, the challenger is trying to grab attention with a new store design, called The City.

For consumers, the next-door location of the two stores can have benefits. "It can make it easier to do a price comparison," says Stephen Baker, vice president of industry analysis at NPD Group. And if a product is sold out at one of the Fifth Avenue stores, shoppers can run next door to see if it's available at the other.

The stakes are high for the retailers. This season, 23% of shoppers polled said they planned to spend money on consumer electronics, compared with 17% who said they would buy apparel, according to a Discover Card survey.

On a recent wintry day, Phil Lee, a tourist from London, was checking out the computers on the second level of The City store. He had stopped in at Best Buy first, and he said he could see a difference.

"This is nice and accessible," he said about The City. "It's more like a modern Apple Store. Best Buy is more of an old-style shop."

Circuit City executives consider the new store a test format, and they say they don't yet know what pieces of it they'll keep and what they'll change.

But the company already has similar test stores in six other cities. The City stores are all smaller and less costly than the traditional Circuit City big boxes, even though the selling area is almost identical in the new and traditional stores, experts say.

Many products, such as cameras and phones, are easy to see on circular countertops. And sales associates, even if they are new employees, can easily answer customer questions because they use tablet PCs with information stored on them. That allows them to move from one product area to another.

Still in the lead

Despite Circuit City's new store design, Best Buy is still in the catbird seat. This year, it has reported sales gains, while Circuit City sales have slumped.

"Best Buy has a very solid management," Baker says. "And once it gets momentum, it's sometimes hard to stop." In part, he says, that's because the industry sees Best Buy as the retailer where new products can get the highest visibility.

Best Buy announced Tuesday that third-quarter revenue increased 17%, including sales at 127 new stores. Its sales at stores open at least a year were up 6.7%.

Circuit City will release its third-quarter earnings Friday. For most of the past five years, it has been outperformed by Best Buy, says Joseph Feldman, a senior research analyst at Telsey Advisory Group. In part, that's because Circuit City has had to cope with employee disruption after it eliminated higher-salaried personnel. It also still has costly big-box stores that it no longer needs because it has stopped selling appliances and because flat-screen TVs don't require much inventory space.

Still, some analysts have seen signs of improvement. After the Fifth Avenue store held a breakfast meeting with Wall Streeters, Scott Tilghman, a research analyst at Soleil Securities Group, upgraded Circuit City. He said its plan to scale down its big-box stores combined with the new store concept should lead to earnings growth over the next few years.

But it will take time, he says. While Circuit City is making changes, "Fundamentals take awhile to shift. In the near term, we expect that performance will be a little rocky."

And Circuit City is up against tough competition. Among adults, 33.7% say they most often shop for electronics at Best Buy, compared with 9.3% who prefer Circuit City, according to BIGresearch, a consumer insights firm. And Best Buy appeals to younger consumers, while Circuit City attracts more consumers over age 45.

Putting technology to work

Marie Alexander of Brooklyn recently decided to check out The City store on Fifth Avenue when she was shopping for a GPS navigation system. She spent time with a sales associate who provided product information from a tablet PC.

"It's very impressive," Alexander said about the service. "In my experience, Best Buy is not so helpful."

Despite The City's new customer tools, Best Buy seems to be attracting more shoppers, according to industry experts who are watching holiday shopping at the Fifth Avenue stores

"Best Buy has slightly longer hours, and the store seems busier," Feldman says. "But I think The City store does some really cool things, like handheld price checkers so you can see if the inventory is in stock and what the price is."