backtop


Print 79 comment(s) - last by exanimas.. on Nov 14 at 6:00 PM

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.



Comments     Threshold


This article is over a month old, voting and posting comments is disabled

By Codeman03xx on 11/11/2008 5:08:58 PM , Rating: 2
The main reason CC collapsed was for bad customer satisfaction. Why do they have bad customer satisfaction, BECAUSE THEY DON'T PAY THERE EMPLOYEES ENOUGH. You give your employees some cash and they help out the customer more. They got to many High school "no it alls" (which NO JACK SQUAT). They try to sell you a SONY anything because its expensive and shinny. Sony VAIO, PS3, BRAVIA, CAMERAS, Etc. The fact is that Sony its EXTREMELY over priced. I know i will get nasty emails saying but blu-ray is soo much better, this is WHY Circuit City failed, because dumb people listen to dumb people. For example you goto Circuit City on look wow blu-ray its shinny fast and has more space so its immediately better than everything, but the truth is that HDDVD HAD THE EXACT quality of Blu-ray its just you couldn't fit an entire TV season on one HDDVD. I Had the whole argument with a Circuit City employee and he still thinks that Blu-ray has better quality. ether way in 5-10 years hopefully we wont even need media, it will all be downloaded from your cable box into a massive hard drive.

Circuit City you deserve this after the way you treated millions of your customers and employees.




"It looks like the iPhone 4 might be their Vista, and I'm okay with that." -- Microsoft COO Kevin Turner














botimage
Copyright 2014 DailyTech LLC. - RSS Feed | Advertise | About Us | Ethics | FAQ | Terms, Conditions & Privacy Information | Kristopher Kubicki