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This one is going to hurt

Circuit City, the nation's second largest electronics retailer, has been struggling badly in its attempt to compete with industry leader Best Buy.  It replaced its chief executive last month and withdrew its financial outlook for the entire year citing traffic declines, stronger competition and a weak brand, along with a particularly large second quarter loss.  Since Q2 2007, Circuit City has only been profitable for one quarter.

Now a Wall Street Journal report, citing sources close to the company, says that drastic measures may be taken to put the electronics retailer back on course.  Circuit City is reportedly considering closing 150 stores and cutting thousands of employees.  The move would allow Circuit City to liquidate $350M USD in assets and possibly avoid Chapter 11 bankruptcy.

The cuts could help Circuit City pay off its leases on its various properties, including its abandoned sites and then renegotiate leases on the remaining stores.

However, the company may consider Chapter 11 bankruptcy protection as an alternative to or in addition to the possible closures.  The company has reportedly hired Skadden, Arps, Slate, Meagher & Flom LLP as its bankruptcy counsel, the firm that handled Kmart's Chapter 11 filing.  It has also hired FTI Consulting Inc. to generate an emergency turnaround plan, and Rothschild Inc. to seek out emergency financing in the banking market.

Early this year, Blockbuster Inc. made a $1.35B USD bid for Circuit City.  This bid was later withdrawn, with Blockbuster citing market changes.  With the recent troubles another merger may not be out of the question, though.

Shares of Circuit City stock have dropped 90.7 percent since the year's start due to the plethora of bad news.

Circuit City's current predicament may remind many of CompUSA’s decline.  At its peak, CompUSA had hundreds of locations.  Faced with falling sales, the company was sold and closed virtually all of its locations.  The company brand and its 16 remaining stores were bought by Systemax, owner of the e-tailer TigerDirect.  The CompUSA brand currently has 23 open stores.

If Circuit City were to exit the market, Best Buy would have a virtual monopoly over large, nationwide brick-and-mortar electronics stores.  It would still face competition, though from smaller stores like Fry's, RadioShack, and the remnants of CompUSA and Circuit City.  It would also continue to face growing pressure from online retailers like Newegg who have shown steady growth.

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RE: Every smart consumer goes online to buy
By Oregonian2 on 10/20/2008 5:33:04 PM , Rating: 2
They couldn't compete with the old newegg, but I've found myself occasionally buying things from circuit city's online store and then stopping by to pick it up on the way home (slight detour) -- and have it cheaper than NewEgg with shipping included. Now, mind you, their inventories are very different, and I'm only talking about a small portion of that which overlaps, but I've found Circuit City good competition for NewEgg sometimes of late. Just saw an ad where CC says their online prices are now the same as in the store. I presume they've raised their online prices. Oh well.

Now.. in the olden days, NewEgg would have blown them to smithereens, but NewEgg prices aren't so low as they used to be, and shipping has been going up (even though most NewEgg stuff comes from only one state away).

We've also Fry's here as well, but it's about 20 miles away and while they have tremendous selection (their strength), their "normal" prices aren't any better than Circuit City or Best Buy that I've seen except when they've stuff on sale (where their price is fantastic for those few people who got one before they ran out -- usually not me).

Used to have a CompUSA nearby (and a "Good Guys" which was near there before CompUSA bought them out). Horrible horrible prices and even worse customer service (picture lines of people at a *single* open checkout stand, and the one cashier offering to take the tiny package of goods out to the customer's car for her (admittedly she was, well, .. you get the picture).

By theapparition on 10/21/2008 8:22:48 AM , Rating: 2
I agree. I really did like CC's buy online, pick up at the store. I usually found prices competitive, and for some things, it was actually cheaper.

One time, I had a drive in a raid 1 array go down, and it was replaced in 40 min, vs having to cross my fingers for a few days with Newegg. Sure, I paid a whooping $5 more for that convience, but it was worth it.

I have a BB and CC about 10 minutes from my house. Imagine my surprise, with all of Circuit City's troubles, when I just saw a new CC store opening up right around the corner, literally 1 minute away. How many stores do they need in an area?

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