10 November 2008

Circuit City Bankrupt

National electronics retailer Circuit City has petitioned for bankruptcy under Chapter 11.

Vendor trade creditors are the largest outsider creditors. "Hewlett-Packard has a $118.8 million claim followed by Samsung ($115.9 million), Sony ($60 million), Zenith ($41.2 million), Toshiba ($17.9 million) and others. Smaller creditors include GPS navigation system maker Garmin, Nikon, Lenovo, Eastman Kodak and Mitsubishi."

The 2005 bankruptcy reforms have made it far harder for retail firms to emerge from Chapter 11, so the prospects are not particularly bright for Circuit City. But, hopefully for the chain, "Circuit City said it had lined up $1.1 billion in loans to provide working capital while it is in bankruptcy protection. That replaces a $1.3 billion asset-backed loan it had been using." In ability to make funds available to anyone but secured creditors who loan against inventory and accounts receivable is a common cause of an inability of retail firms to reorganize succesfully under Chapter 11.

The leading owner of Colorado based Ultimate Electronics is also a major shareholder of Circuit City, which may portend a possible attempt by Ultimate Electronics to buy out the larger, but less profitable chain.

"The company said in its filing that it had $3.4 billion in assets and $2.32 billion in liabilities, as of Aug. 31." Its falling stock price had put it at risk of being delisted from the stock exchanges, and it had been at risk of not receiving Christmas season inventory shipments from suppliers worried about getting burned if the company collapsed. The company's sales are down, its CEO was replaced in September, and it was already closing many stores. "Circuit City Stores Inc. announced a week ago it planned to close 155 of its more than 700 U.S. stores by Dec. 31."


Anonymous said...

Remember when Circuit City was a favorite in “Good to Great” by Jim Collins? Remember when we thought being big gave you clout with customers and vendors to produce long-term returns (Michael Porter’s 5 Forces Model)? It’s time we recognize that the old approach to management doesn’t work in a rapidly shifting competitive world. There are winners in today’s market, but they follow a different approach. Read more at http://www.ThePhoenixPrinciple.com

Dave Grady said...

In May 2007, Circuit City decided to fire all their experienced employees and managers in order to cut costs. Oh sure, they let the senior folks apply for jobs, but at lower rates.

It was appalling, immoral, and bad business. Customers walked when they couldn't get any decent help, and now Circuit City is about to fail entirely.

I have only two sentiments for this company: "goodbye" and "good riddance."

Raymond said...

To those folks that lost their jobs at Circuit City...Time to hit the employment sites!

www.linkedin.com (professional networking)
www.indeed.com (aggregated listings)
www.realmatch.com (matches jobs based on your skills)

Good luck!