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Print 73 comment(s) - last by mindless1.. on Oct 23 at 1:43 AM

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  This bid was later withdrawn, with Blockbuster citing market changes.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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By rickon66 on 10/20/2008 6:19:21 PM , Rating: 2
When all the B & M stores are gone, where are you going to go and try out stuff that you are interested in buying. I buy most of my computer components online, but I need to personally eyeball and hear some items. TV screens, computer cases, monitors, speakers, cameras are some of the thing that I need to see, hear and feel before I buy them. After CompUSA closed there is no place around here to personally look at computer cases in the flesh. I for one, don't want to be limited to looking at pictures at Newegg when I choose a new HD TV. If you don't like a store, by all means avoid it, but why do some seem so happy when a chain is about to close and the employees lose their jobs. The more local competition the better!




By FITCamaro on 10/21/2008 8:33:37 AM , Rating: 2
Agreed. A processor is a processor. But a TV, I want to see it before I buy it. Same with a surround sound system. And if I'm going to go into a store to see something, I'm going to buy it there. I'll pay a little more for the convenience of bringing it back if I have a problem.


"We basically took a look at this situation and said, this is bullshit." -- Newegg Chief Legal Officer Lee Cheng's take on patent troll Soverain














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