Circuit City In Credit Crisis, Closing 155 Stores
By Alan Wolf -- TWICE, 11/3/2008
UPDATE! Richmond, Va. — Circuit City said new credit and payment terms imposed by vendors are becoming “unmanageable” for the company, making it difficult to order holiday inventory and prompting it to close 155 underperforming stores and exit 12 markets in an effort to save cash.
Vendors tightened their terms in reaction to Circuit City’s worsening liquidity situation, as the economic downturn impacted sales and margins more severely than management had anticipated, the company said.
The recent turmoil in the financial markets has also made it virtually impossible for some of its vendors to obtain credit insurance from factors on Circuit City’s purchases, the retailer said.
As a result, key vendors are requiring payment up front and have curtailed their holiday credit lines.
Adding to the cash crunch was a reduction in Circuit City’s bank-based credit line, as the inventory that secures the loan was recently reassessed at a lower value.
The company has also been unable to collect an anticipated $80 million income tax refund from the federal government.
The No. 2 CE chain said it is “working diligently to secure the support of its vendors,” and is considering “all available options and alternatives for the business.” The company said it plans to continue operating without interruption while it negotiates with lenders and other third parties regarding various financing alternatives, and is working with its advisors to develop restructuring alternatives while conserving cash and cutting expenses.
In a statement, vice chairman and acting CEO James Marcum said the confluence of unprecedented events in the financial and consumer markets has “strained severely our working capital and liquidity,” forcing the company to close stores, reduce new store openings and renegotiate some of its leases.
The store closings will leave the chain with 566 locations, down 22 percent from the current 712, and will cut its workforce by about 17 percent. The 155 stores targeted for closure produced about $1.4 billion in revenue, or approximately 14 percent of total company sales, but were generally unprofitable, the retailer said. Liquidation sales will begin Wednesday, Nov. 5, and the stores are expected to close no later than the end of December.
Circuit City has reduced its new store openings from 12 to two for the balance of the year, and has dropped plans to open any new stores in 2009.
The company will also attempt to renegotiate terms with its landlords, including terminating the leases on the 155 marked stores and certain vacant locations, and lowering the rents on other properties in lieu of breaking the leases.
The announcements follow last week’s warning from the New York Stock Exchange that Circuit City is in danger of being de-listed because its share price has remained under $1 for more than 30 trading days. The stock was trading at 37 cents a share at noon EST Monday.
Michael Lasser, a retail analyst with Barclays Capital, believes Circuit City’s outlook is dire. In a research note, he suggested that consumers may be hesitant to shop the chain as they learn of its store closures and financial straights. He also argued that that previous attempts by retailers to reduce their store base, including CompUSA and Linens ‘N Things, have resulted in complete liquidation.
That fate awaits Tweeter, the 26-year-old A/V specialty chain that commenced going–out-of-business sales over the weekend.
Clickhereto read TWICE's complete coverage of Circuit City and Tweeter.
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I think we saw this coming when CC dropped the commissioned salesman concept and fired their top writers. Had they kept their best people, chances are they might have been solvent today. I'm sorry to see them go, if they do. But they did it to themselves. I can't have any sympathy for them.
Competitor - 2008-4-11 17:44:00 EST -
I guess I am mostly to blame for this. You see I used to work at both CC and Best Buy. I would tell my CC customers to come see me at Best Buy for a better deal.
I would say over the years I took at least $100,000.00
from CC which was apparently too much for them to handle. I feel horrible about putting all those people out of work.
Dave Stroodle - 2008-4-11 11:21:00 EST -
The elephant in the room is Best Buy who already announced they are
ready to fill the void.
This is not good for the industry or the customer. As the big get bigger it
limits the choices for consumers and squeezes the suppliers even further.
It does not help the little guy or the regional chains compete.
joe black - 2008-4-11 11:08:00 EST -
This is the same death march that Comp USA did a couple of years ago. Close a large portion of stores, in hopes to shore up revenue. But in the end, it is merely a bandaid on a dead man in terms of the business. Sadly, the incompetence of the upper leadership began the sinking of the ship, and now the growing economic crisis is putting the last nail in the coffin for Circuit City. If Circuit survives this economic crisis and turns their business around... it would be a miracle that academics will be studying for years to come.
Adam C. - 2008-3-11 21:46:00 EST -
It is a sad day in the consumer electronics world. Having worked for both CC and BBY at a management level I will say this...Culture is something CC never quite got right..."the city" was a great concept that was just 5 years too late. It''s a shame that more customers did''t get to experience it. Circuit still has some great people...I wish them well.
Vincent Vega - 2008-3-11 16:32:00 EST
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