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Rich Pedroncelli/AP

Circuit City Goes Into Liquidation

January 16, 2009 04:15 PM
by Anne Szustek
Electronics retailer Circuit City announced Friday that it is going into liquidation after filing for Chapter 11 bankruptcy in November. Some 30,000 employees stand to lose their jobs.

Circuit City Liquidates After Filing for Bankruptcy and Abysmal Holiday Shopping Season

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Electronics retailer Circuit City is going into liquidation, as it was unable to find a buyer following its bankruptcy, according to a company statement released Friday. Its 567 U.S. locations are to be closed and possibly some 30,000 employees will lose their jobs. 

Circuit City acting chief executive James A. Marcum said in the statement, "This is the only possible path for our company ... We are extremely disappointed by this outcome."

Great American Group, Hudson Capital Partners, SB Capital Group and Tiger Capital Group have been named liquidators.

Circuit City applied for bankruptcy protection Nov. 10 under Chapter 11 at U.S. Bankruptcy Court in Richmond, Va. The retailer had been in business 59 years. The court allowed Circuit City to liquidate if it could not find a buyer.

Movie rental chain Blockbuster made a $1 billion takeover bid for the flailing retailer, although rescinded the offer in July due to sluggish trends in the retail sector.

The electronics retail chain’s filing for bankruptcy came a few days after it announced it was closing 155 locations—over 20 percent of its stores—and laying off 17 percent of its American staff.

Circuit City also filed for bankruptcy in Canada. As of Friday, the store's Canadian unit was still working for a takeover.

At that time, Circuit City said that it was looking at all options to stay in business. But a final blow was dealt to the company when several of the store’s vendors cut off credit and demanded cash up front for new shipments of stock in light of concerns over lagging sales and cash flow. Circuit City had lost money during five of the six financial quarters previous to its bankruptcy.

In all, Circuit City owes some $650 million to its vendors. In its bankruptcy filing, the store “listed $3.4 billion in assets and $2.32 billion in liabilities,” reported Bloomberg.

Among the suppliers to which Circuit City is indebted are electronics manufacturer Samsung, which the store owes $116 million, and personal computer producer Hewlett-Packard, to which Circuit City has $118 million in outstanding bills. Other Circuit City major suppliers include Sony, Zenith, Toshiba, Garmin and Nikon.

Company Chief Financial Officer Bruce Besanko was quoted by Reuters as saying, “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.”

Minneapolis-based Best Buy, a chief competitor of Circuit City, has mentioned there is a possibility it would take over stores closed by struggling competitors.

Alan J. Wurtzel, former Circuit City CEO, board chair and vice chair and the son of company founder Samuel S. Wurtzel, has pointed to the retailer's underestimation of Best Buy's weight in the market, as well as possible overconcentration on short-term profits, as possible reasons for its demise.

The younger Wurtzel told the AP that the liquidation is "very, very sad ... I feel particularly badly for the people [who] are employed or until recently were employed."

“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,” Jeffries and Co. analyst Jeff Binder told Reuters in November. “There’s already soft demand out there and probably too much supply. This exacerbates the situation.”

Background: 2008 holiday retail season less than jolly

On Wednesday, the National Retailer Federation released 2008 holiday retail season statistics that were even more sluggish than projected last autumn. Sales during this holiday season were down 2.8 percent, worse than the 2.2 percent industry analysts had predicted.

Some retailers make as much as half of their annual sales during the months of November and December. The Associated Press called it "the worst holiday shopping season in four decases [sic]."

A precursor of a blue Christmas for retailers was the industry’s job market. The U.S. retail sector trimmed 31,100 jobs in October, marking the 11th straight month of employment losses in the sector—and signaling a tight budget for those who depend on holiday employment to tide them through the gift-giving season.

“It is a bleak season for retailers, and that is going to impact their hiring,” John Challenger, CEO of Chicago outplacement company Challenger, Gray & Christmas told the Associated Press last autumn.

Some retailers were adapting to the sluggish economy buy purchasing cheaper inventory. Anthony Sindoni, an owner of a Stamford, Conn., store selling hand-blown glass, told newspaper the Stamford Advocate that he’ll be stocking less-expensive items than usual this holiday season: only 20 percent of his orders will be for items retailing in excess of $200, and that for the first holiday season in his five years of business he would not order anything worth more than $2,000.

In addition to adverse economic conditions, harsh winter weather and a shopping season that was shorter than the average by five days cut into 2008 holiday sales.
“It is a bleak season for retailers, and that is going to impact their hiring,” John Challenger, CEO of Chicago outplacement company Challenger, Gray & Christmas told the Associated Press last autumn.

Some retailers were adapting to the sluggish economy buy purchasing cheaper inventory. Anthony Sindoni, an owner of a Stamford, Conn., store selling hand-blown glass, told newspaper the Stamford Advocate that he’ll be stocking less-expensive items than usual this holiday season: only 20 percent of his orders will be for items retailing in excess of $200, and that for the first holiday season in his five years of business he would not order anything worth more than $2,000.

In addition to adverse economic conditions, harsh winter weather and a shopping season that was five days shorter than the previous year's cut into 2008 holiday sales, said the National Retail Federation.

Reference: Bankruptcy, consumer protection

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