Bankrupt Circuit City to
Liquidate Remaining US Stores
Leaving 30,000 Unemployed
MICHAEL FELBERBAUM and VINNEE TONG / AP 16jan2009
Bankrupt Circuit City Stores Inc., the nation's second-biggest consumer electronics retailer, said Friday it failed to find a buyer and will liquidate its 567 U.S. stores. The closures could send another 30,000 people into the ranks of the unemployed.
"This is the only possible path for our company," James A. Marcum, acting chief executive, said in a statement. "We are extremely disappointed by this outcome."
The company had been seeking a buyer or a deal to refinance its debt, but the hobbled credit market and consumer worries proved insurmountable.
The liquidation of Circuit City is the latest fallout from the worst holiday shopping season in four decases. People have slashed their spending since the financial meltdown in September as they worry about their job security and declining retirement funds.
Other recent casualties include KB Toys, which filed for bankruptcy in December and is liquidating stores. Department store chains Goody's Family Clothing and Gottschalks Inc. both filed for bankruptcy this week — Goody's plans to liquidate, while Gottschalks hopes to reorganize.
Industry experts expect more bad news in the coming months as spending likely will deteriorate further.
Circuit City said in court papers it has appointed Great American Group LLC, Hudson Capital Partners LLC, SB Capital Group LLC and Tiger Capital Group LLC as liquidators.
"Regrettably for the more than 30,000 employees of Circuit City and our loyal customers, we were unable to reach an agreement with our creditors and lenders," Marcum said.
Shareholders are likely to receive nothing, as is typical in bankruptcy cases. It was unclear what would happen to the company's 765 retail stores and dealer outlets in Canada.
"Very, very sad," said Alan L. Wurtzel, the son of company founder Samuel S. Wurtzel, and the chief executive from 1972 to 1986, board chairman from 1986 to 1994 and vice chairman until 2001. "I feel particularly badly for the people are employed or until recently were employed."
Wurtzel has previously said Circuit City didn't take the threat of rival Best Buy Co. seriously enough and, at some points, were too focused on making a profit in the short term instead of building long-term value.
Circuit City filed for Chapter 11 bankruptcy protection in November as vendors started to restrict the flow of merchandise ahead of the busy holiday shopping season.
It had been exploring strategic alternatives since May, when it opened its books to Blockbuster Inc. The Dallas-based movie-rental chain made a takeover bid of more than $1 billion with plans to create a 9,300-store chain to sell electronic gadgets and rent movies and games. Blockbuster withdrew the bid in July because of market conditions.
Circuit City, which said it had $3.4 billion in assets and $2.32 billion in liabilities as of Aug. 31, said in its initial filings that it planned to emerge from court protection in the first half of this year.
Under court protection, Circuit City has broken 150 leases at locations where it no longer operates stores. The company already closed 155 stores in the U.S. in November and December.
U.S. Bankruptcy Judge Kevin Huennekens had given the company permission to liquidate if a buyout was not achieved. The company still needs final approval of a liquidation from the court.
The liquidation is the latest big blow to the nation's malls, which have suffered from a rise in vacancies as a slew of chains from Mervyns LLC to Linens 'N Things have liquidated. But analysts say that the demise of Circuit City, whose stores range in size from 20,000 to 25,000 square feet, will hurt the fortunes of mall operators even more.
"It will bring to market a glut of big box spaces across the country," said John Bemis, head of Jones Lang LaSalle Inc.'s retail leasing team. "It will have one of the largest impacts on big box real estate across the country."
AP Retail Writer Anne D'Innocenzio contributed to this report.
Retailer Circuit City to Liquidate
Consumer-Electronics Pioneer Closing;
34,000 Workers Will Lose Jobs
MIGUEL BUSTILLO / Wall Street Journal 17jan2008
Circuit City Stores Inc. begins liquidating its remaining 567 U.S. stores on Saturday, the largest retail casualty yet in a recession that is expected to claim more victims.
First Quarter Layoffs:
The electronics and digital-media retailer will be marking down goods by 10% to 30% with higher discounts as the expected April closing approaches. However, retail experts warned that liquidation discounts don't often achieve the level of prior sales prices.
The demise of the 60-year-old appliance and electronics chain, the nation's second largest after Best Buy Co., underscores the difficulty retailers have had restructuring under bankruptcy in the current economy.
"We are extremely disappointed by this outcome," Circuit City's acting chief executive, James A. Marcum, said in a statement. "Regrettably for the more than 30,000 employees of Circuit City and our loyal customers, we were unable to reach an agreement" to sell the company and avoid liquidation, he said.
The going-out-of-business sales will start Saturday and will last roughly 90 days, company officials said.
Circuit City initially tried to weather the storm by closing 155 stores and laying off hundreds of workers at its Richmond, Va., headquarters. But sales since the November 10 bankruptcy had plunged 43% to 50%. A week ago, it warned it would likely have to liquidate if it did not find a buyer by Friday because its suppliers were increasingly demanding to be paid up front and it was running out of money.
On Friday, Circuit City told a bankruptcy judge that an auction to sell itself as a going concern had failed to garner bidders, leaving it no choice but to accept bids from four liquidators: Great American Group WF LLC, Hudson Capital Partners LLC, SB Capital Group LLC, and Tiger Capital Group LLC.
Every major U.S. retailer that has sought to reorganize under bankruptcy-court protection in the past year has eventually been forced to liquidate because of a lack of buyers or financing. That has fueled a boom in the business of running liquidations.
Stephen Baker, vice-president of industry analysis at NPD Group, said bargains have been scarce amid all the closings. "The people who run these liquidation sales are looking to make money, not give stuff away."
Circuit City's demise puts new pressure on commercial property landlords already weighed down by retail closings at Linens 'N Things, Mervyn's LLC, Bombay Co., Sharper Image Corp. and Steve & Barry's LLC. Vacancy rates rose to 8.9% last quarter in the 76 largest U.S. commercial property markets.
"The key issue is can you find a replacement tenant for the [entire store] or do you have to break it up?" said Glenn Rufrano, chief executive of Centro Properties Group, whose retail centers include 23 Circuit City stores. Developers Diversified Realty Corp., which has 50 Circuit City stores among its shopping centers, didn't return calls seeking comment.
The company's 765 additional stores and retail outlets in Canada, which are generally smaller and employ about 3,000 workers, are part of a separate bankruptcy process. That business is still being auctioned off as a going concern with bidding scheduled to end next week.
People close to the U.S. bankruptcy filing said private-equity firm Golden Gate Capital was interested in buying the entire company late Thursday evening, but was unable to convince creditors to give it even a few extra days to study the retailer's finances. Creditors were unwilling to grant the time because they concluded Circuit City was inevitably finished.
"We were in deep negotiations, but those negotiations broke down. There was an inability to get a deal structured in time," Circuit City spokesman Bill Cimino said.
Circuit City, which had revenue of $11.7 billion in the fiscal year ended last February, was founded in Richmond in 1949 by Samuel S. Wurtzel as "Wards Company." It grew rapidly in the South, selling appliances and electronic equipment, and by the 1980s was the top consumer electronics chain in America.
However, competition from Minnesota upstart Best Buy caught Circuit City flatfooted in the 1990s, and its market share steadily declined. Best Buy is now the nation's largest consumer electronics chain.
Circuit City tried a variety of strategies to combat Best Buy, which surpassed it by building up high-profile, warehouse-style stores run with an hourly-wage staff. Circuit City, which stayed too long with showroom-style outlets, did away with commissioned sales staff earlier this decade.
In 2007, it fired more than 3,000 of its most seasoned employees in a bid to cut costs. But the move backfired, leaving Circuit City with a reputation for poor customer service that dogged the company, even in bankruptcy.
Experts disagreed on whether Circuit City's liquidation sales would harm other retailers. Many expect the company's disappearance to eventually benefit Best Buy and the world's largest retailer, Wal-Mart Stores Inc., an emerging force in consumer electronics retailing. Best Buy's stock rose 8% to $29.34 in 4 p.m. composite trading on the New York Stock Exchange Friday.
—Kris Hudson contributed to his article.