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Closing 155 of its retail locations wasn't enough to prevent bankruptcy for Circuit City

The state of the global economy and that of the U.S. economy are making things difficult on many companies in the U.S. as sales fall and credit terms tighten. Consumer electronics retailers and computer manufacturers are among the companies that are feeling much of the economic pressure.

One of the biggest retailers to find itself in a serious economic crunch is Circuit City. The consumer electronics retailer announced today that it is filing for Chapter 11 bankruptcy to protect itself from creditors after cash flow problems began to prevent it from completing its turnaround efforts.

The bankruptcy filing is far from the first sign that the electronics retailer was suffering. Circuit City announced just last week that it was closing 155 of its stores across America. The massive store closures would eliminate 17% of Circuit City's U.S. workforce.

Reuters reports that out of the last six quarters Circuit City has reported a loss in five of them. The consumer electronics leader is Best Buy followed closely by Wal-Mart according to Reuters. Losing the competition posed by Circuit City in the markets where its stores are closing would at a glance seem to be a good thing for other consumer electronics retailers.

However, Circuit City is having massive liquidation sales at the closing locations that could prove to be a big problem for Best Buy – at least in the short term. In the beginning stages of the liquidation sales discounts at Circuit City are said to be at least 30%. As time goes by and the stores get nearer to closing, the discounts will only get bigger. The discounted merchandise could pull important holiday shoppers from the more stable electronics retailers into closing Circuit City stores.

Analyst Dan Binder from Jefferies & Co told Reuters, "Longer term, you've got Best Buy, who's dominant in the sector, taking share. But in the short run it could feel the pain of the liquidation activity."

Filings from Circuit City for Chapter 11 showed the company had $3.4 billion in assets and $2.32 billion in debt as of August 31 with more than 100,000 creditors. Circuit City first started to consider closing stores in October. At the time the Wall Street Journal reported that the closing of the stores was an attempt to stave off Chapter 11.

Only a few weeks later Circuit City announced on November 3 its plans for closing the 155 stores across the country. A big factor in the decision to file Chapter 11 was the fact that Circuit Creditors had tightened credit terms extended to the retailer considerably. Some creditors were even requiring upfront payments before shipping goods.

Circuit City CFO Bruce Besanko wrote in a court filing, "In large part, a Chapter 11 filing is due to three factors, all of which contributed to a liquidity crisis that prevented the company from completing its turnaround goals outside of formal proceedings: erosion of vendor confidence, decreased liquidity and a global economic crisis."

Best Buy had said previously that it would consider taking over locations that rivals closed. There is no word from Best Buy on whether it will take over any of the Circuit City stores that are closing.

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Retail Stores
By 325hhee on 11/10/2008 2:02:13 PM , Rating: 2
I don't get it, people complain about the service from both BB and CC, but the bottom line is, they're both retail stores. You don't need to have a college degree to get a job there, and most of the sales people that work there are either kids in high school, or someone who is just working there just to get a pay check. Worse stores are the ones that work on commission like J&R here in NYC, I used to work for them, and we gave all the BS possible to get the sale with the best commission. I even said back in the P3 days Intel was far better than AMD, because I got a $20 bonus per Intel sale.

Both CC and BB have the same prices on non sale items, they're "Retail" stores. And they can not compete with online E-Tailers like Amazon, newegg, etc. No overhead, is a huge savings to these kinds of companies, you don't have to pay outrageous rent for a B&M, don't need a staff on the sales floor, etc.

I only use BB & CC when a new DVD comes out, they're usually $5-$10 off the retail prices, games haven't had sales on release dates in a while. I may buy a TV from one of them, but only if it's onsale and I have a coupon and other perks to go along with it. Big items I'd buy locally, only because it's a hassle to deal with a 32" TV that goes bad, have dead pixels, etc via internet purchases.

Retail is there for the impulse buy, or the need to have now buy, and with the economy in the toilet now, and jobs being lost left and right, no one is spending money. Or they're spending a lot less. Why does BB do better than CC is beyond me, to me they're the same store. Apple, Bose, Sony, and a few other company dictate their prices, and they'll be same everywhere you go, sometimes even on the net you can't get a better deal. I do my shopping either eon the net, or the weekly circular that comes out, that's it.

Who ever has the best deal gets my business, I don't interact with the staff, I just want the item I see on sale, go in and wait 20 yrs on line, because either the cashier is an idiot, or someone buying something has a million questions when they get to the register.

That's the main reason I hate B&M.

"Vista runs on Atom ... It's just no one uses it". -- Intel CEO Paul Otellini

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