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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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RE: Thank goodness for...
By MrBlastman on 11/10/2008 3:16:46 PM , Rating: 2
What part of what I said, in the context of the thread stream, indicated I was referring directly to Circuit City? TomZ referenced B&M stores, with which I directly retorted.

You are grasping at straws here. :)

Look, if I want to review a lineup of TV's, weather I go to Hi Fi Buys, Best Buy, Fry's, Circuit City or any other B&M store (even the high end ones), if all of the TV's share the same awful signal, or good signal, they will equally have an equal opportunity to display their quality to me. If it is a bad signal, they will all use that same bad signal, allowing me to judge them among their peers. I'm not looking to evaluate a TV on its own at this point, I am simply looking to weed a few out from the rest and at that point I can begin a more targeted approach to what suits my tastes or not.

Are you implying it is entirely plausible to sit at home on your couch and order three or four different TV's via the internet, have each delivered one after another and try them one after another?

I would dare say that is inefficient both on your time and of our postal system for delivery costs and time spent. It is sometimes far easier to walk up to a display to get a general idea and then narrow things down.

RE: Thank goodness for...
By Suntan on 11/10/2008 3:56:26 PM , Rating: 3
That would be the original post of yours where you were lamenting the loss of CC.

Get off it. The reality is that you *can* get a very good sense of what to buy with online research. Then you can order it and verify that it meets your needs. You can return it if it doesn’t. The idea that people buy online because they don't really care what they get is a crap argument.

I’m still waiting to hear which CC has my monitor so I can see it in real life prior to buying it…


RE: Thank goodness for...
By MrBlastman on 11/10/2008 7:51:15 PM , Rating: 1
You either are thick headed or you have a sunburn inside your head... I can't seem to figure out which it is. :)

It is far easier to size up a product in person than through a website.

"I'd be pissed too, but you didn't have to go all Minority Report on his ass!" -- Jon Stewart on police raiding Gizmodo editor Jason Chen's home

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