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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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Freaking managent... seriously.
By gochichi on 11/10/2008 8:07:16 PM , Rating: 2
Maybe I simply like the underdog, but I strongly prefered shopping at Circuit City. My local Circuit City had a great space but dim lighting (some of the lights were out and they wouldn't get replaced, it was odd)... which signals to me incompetent management.

Thus, at the Macro level yeah... yada yada yada "global economic crisis" blah blah blah. But truly, I think they went lax on manager training and worker morale. Put some new light bulbs in, tidy up the whole store and SELL ... that means act motivated, smile, etc. etc. Not to be judgemental of the people, but the culture at Circuit City had collapsed long ago and it was that mistake that caused this, not the economy, not Walmart's "evil empire".

When stubbornly and loyally shopping at Circuit City I felt like slapping some managers. Now I kind of wish I had (not literally)... but c'mon yall, get that fire going.

If Best Buy is doing fine, and Best Buy is SO far from perfect... it signals to me that the conditions in the market are just fine. Seriously top management at Circuit City, you guys blew it cause you blow.

At least there will be some good buys. Bad lighting, and dead beat management and all... I'll still miss Circuit City. Something about the hair-gel over at BB just rubs me the wrong way. I think it's partly that newbs love shopping there. I'll buy stuff there, but I'm in and out as fast as I can.

RE: Freaking managent... seriously.
By Davelo on 11/10/2008 10:18:06 PM , Rating: 2
It's the only explanation. Bad decisions by upper management. If it was market conditions then Best Buy would also be suffering, but they're not. I hate going to BB because they have so many customers it takes too long to get through the checkout and forget returning anything. I once waited almost two hours in a return line at BB after Christmas. Frys is the same.

So CC managers, it's all your fault. You suck.

"A politician stumbles over himself... Then they pick it out. They edit it. He runs the clip, and then he makes a funny face, and the whole audience has a Pavlovian response." -- Joe Scarborough on John Stewart over Jim Cramer

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