Report: Circuit City Mulling Closure of 150 Stores, Massive Job Cuts
October 20, 2008 3:02 PM
comment(s) - last by
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.
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
bid was later withdrawn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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Retail Paradigm Shift
10/21/2008 2:31:55 AM
The high-tech retail commerce landscape is rapidly changing with technological e-commerce improvements. Clearly, manufactures are opening up storefronts in cyberspace directly linked to their very own factory machinery. Once an order is clicked, the churning starts for rapid product delivery.
I'd imagine that tech savvy consumers would flock to Vegas once a year to see what is the latest and greatest. Also read a non-biased review or two from some consumer reporting website. The possibility of missing out on the touchy, feelin', and seein' is believin' experience could be obtained by traveling showrooms. If one is not available, then they may as well just send the product directly for a free trial!
In my opinion, the best prices can only come directly from the manufacturer. This leaves any remaining brick-and-mortar stores selling the same products towards the expensive side.
"Spreading the rumors, it's very easy because the people who write about Apple want that story, and you can claim its credible because you spoke to someone at Apple." -- Investment guru Jim Cramer
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