Circuit City Files Bankruptcy For Losing Billions
Circuit City, the second biggest chain of electornics store in the United States has recently filed bankruptcy for losing billions of dollars. Circuit City is among the top companies that has filed bankruptcy since the start of the world crisis this year.
BusinesWeek stated in a report that “Circuit City (CC) has lost more than $5 billion in stock market value over the past two years, and a bankruptcy filing has been anticipated for months (BusinessWeek.com, 7/2/08). Its business was gradually stolen away by discounters such as Wal-Mart (WMT), specialty chain Best Buy (BBY), and online sites like Amazon.com (AMZN) and Buy.com. In July, a proposed $1 billion acquisition by Blockbuster (BBI) fell apart. CEO Philip Schoonover quit in September under pressure from activist shareholder Mark Wattles.
Wal-Mart has vastly stepped up its commitment to consumer electronics over the past five years. Last year, Wal-Mart generated $17 billion in consumer electronics sales, while Best Buy did $28 billion and Circuit City did just under $11 billion, according to Pali Capital. Wal-Mart’s market share has surged thanks to its low-price mantra—just this past weekend, the retailer unveiled discounts on hundreds of items, including Blu-ray DVD players marked down to under $200.”
Yahoo also had a similar report
Facing pressure from vendors and consumers who aren’t spending, Circuit City Stores Inc. filed for bankruptcy protection Monday as it heads into the busy holiday season with hopes that the move will help it survive.
Under Chapter 11 protection, the nation’s second-biggest electronics retailer can keep operating while it develops a reorganization plan. Its Canadian operations also filed for similar protection.
The company also said it cut 700 more jobs at its Richmond, Va., headquarters, after announcing a week ago that it would close 20 percent of its stores and lay off thousands of workers.
In court documents, Chief Financial Officer Bruce H. Besanko cited three factors: erosion of vendor confidence, decreased liquidity and the global economic crisis.
“Without immediate relief, the company is concerned that it will not receive goods for Black Friday and the upcoming holiday season, which could cause irreparable harm to the company and its stakeholders,” Besanko said in the filing.
Its shares fell 14 cents, or about 56 percent, to 11 cents on Monday before being halted.
Circuit City, which has had only one profitable quarter in the past year, has faced significant declines in traffic and heightened competition from rival Best Buy Co. and others. The company laid off about 3,400 retail employees last year and replaced them with lower-paid workers, a move analysts said could backfire, hurting morale and driving away customers.While the retail industry overall is facing what’s expected to be the weakest holiday season in decades, Circuit City’s struggles have intensified as nervous consumers spend less and credit has become tighter.
At a hearing in Richmond, U.S. Bankruptcy Judge Kevin Huennekens granted Circuit City interim approval to secure $1.1 billion in debtor-in-possession loans while it is in bankruptcy protection. Those funds, needed to stock merchandise and pay employees, replace a $1.3 billion asset-backed loan the company had been using.
Circuit City also was granted interim approval to abandon 150 leases at locations where it no longer operates stores, which it said costs $40 million annually.
The company, which said it had $3.4 billion in assets and $2.32 billion in liabilities as of Aug. 31, is hoping to exit court protection by early summer 2009, putting it in a position to find a buyer for the chain or operate as a standalone business.
Final approval of the motions will be addressed at a Dec. 5 hearing.
Analysts said much depends on Circuit City’s relationship with its vendors and how it handles its real estate issues.Circuit City is a well-known brand and could re-emerge from bankruptcy, Stifel Nicolaus & Co. analyst David Schick said in a note to investors. “We believe the marketplace has a slot for a higher-end chain with a commissioned sales force,” he said.
But Stephen Lubben, a professor at Seton Hall Law School, said Circuit City’s survival depends on whether its creditors work with the company “or whether they think they’re a lost cause and cut them off permanently.”
JPMorgan analyst Christopher Horvers agreed, saying it boiled down to merchandise. “If they can get inventory into the stores, I can think they’ll remain competitive.”
The company’s biggest creditors are its vendors: Hewlett-Packard has a $118.8 million claim followed by Samsung ($115.9 million), Sony ($60 million), Zenith ($41.2 million) and Toshiba ($17.9 million). Smaller creditors include GPS navigation system maker Garmin, Nikon, Lenovo, Eastman Kodak and Mitsubishi.
Deutsche Bank analyst Mike Baker told investors that consumers learning about Circuit City’s bankruptcy may go elsewhere because of a lack of confidence in the company.
At a Circuit City Warehouse Store already slated for closure in Milwaukee, Courtney Bergeron, 29, said he heard the news about the company and figured he should see if there were any deals for flat-screen TVs.
Although he saw some discounts — about 15 percent off televisions at least 32 inches wide — Bergeron figured he should wait.
“On Black Friday, they’re probably going to be lower than this,” he said.
Bergeron and his friend, Bertha Harris, also 29, said they hadn’t shopped much at Circuit City over the years. He said Circuit City’s selection was limited, so he ended up buying more electronics from Best Buy and discounter Wal-Mart Stores Inc.
Harris said she was always dissatisfied with service at Circuit City. When she asked questions the workers couldn’t answer them on their own, she said.
“They knew as much as I knew about things,” she said, adding it wasn’t much.Circuit City announced a week ago it planned to close 155 of its more than 700 U.S. stores by Dec. 31. It is laying off about 17 percent of its domestic work force, which could affect up to 7,300 people.
Horvers said the reorganization could help Circuit City get out of leases for certain bad store locations — something Schick said had been one of the company’s main issues.Circuit City “had many problems in the end — but all began, in our view, with holding on to 1980s real estate too long,” he wrote.
In another report in this site, Ford Motor is also suffering from huge losses because of the present world crisis. Please read that article to better understand international business situations.
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Tags: Circuit City Bankrupt, Circuit City Bankruptcy, International Business News
One Response to "Circuit City Files Bankruptcy For Losing Billions"
January 14th, 2009 at 9:37 am
[...] here, you may want to subscribe to my RSS feed. Thanks for visiting!In 2008, reports stated that Circuit City is losing billions of dollars in revenue. This triggered Circuit City to close down. Recession in the US really took its toll [...]