Retailers used to have to sell stuff to attract investors -- now they just have to give it away.
Shares of Richmond-based Circuit City Stores Inc. rose almost 17 percent last week to close at $99 in New York Stock Exchange trading, a 52-week high. The company announced Wednesday that it will give customers $400 rebates on new computers if they sign up for three years of CompuServe Internet service. That rebate applies to all the computers the No. 2 U.S. consumer electronics retailer sells, including the $399 eMachine eTower.
The company's move followed competitor Best Buy Co.'s announcement that it would test a similar $400 rebate in three of its markets; Best Buy responded to Circuit City by taking its offer national. Other computer retailers are expected to follow with similar offers.
"The free PC movement is going to finally set a floor on declining average sales prices for personal computers. If not, they're going to be paying you to take these machines out the door," Merrill Lynch retail analyst Peter Caruso said in a conference call.
Caruso and others say free PCs are a plus for retailers because they will attract customers to stores, where they might spend on other products. The Internet service providers, not the retailers, are shouldering much of the risk in these deals, Caruso said. He reiterated his "buy" recommendation on Circuit City, Best Buy and Tandy Corp., which runs Radio Shack stores.
Stock markets overall were strong last week as investors reacted to the Federal Reserve's announcement that it is not inclined toward future interest rate increases. The Washington Post-Bloomberg index of more than 220 local stocks, which has barely moved for a couple of months, jumped 6 points during the week, in good part because Circuit City is a large company with high-priced shares.
On the losing side, shares in Dulles-based Template Software Inc. dropped 26 percent in Nasdaq trading. The company said "disappointing" results in its European operations will lead to a "significant" second-quarter loss.