Bankrupt Circuit City Stores Inc., unable to work out a sale of the company, said Friday it will go out of business - closing its 567 U.S. stores and cutting 30,000 jobs.
The nation's second-biggest consumer electronics retailer is the latest casualty of an unprecedented pullback in consumer spending that has driven other brands such as KB Toys, Mervyns LLC and Linens 'N Things into bankruptcy. Experts believe there will be more to come.
"This is the only possible path for our company," Circuit City's acting Chief Executive James A. Marcum 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. Negotiations for an acquisition went past midnight on Thursday, Circuit City lawyer Gregg Galardi said in court.
Two buyers - Mexican billionaire Ricardo Salinas Pliego, who controls a chain of electronics stores in Latin America, and the Golden Gate Capital private equity firm - had been looking to buy the company in a shrunken form, with either 350 stores or as few as 180 stores. But the company couldn't secure the necessary financing or support from vendors.
Some employees were notified Friday that they would lose their jobs and certain stores would begin close-out sales as early as Saturday.
U.S. Bankruptcy Judge Kevin Huennekens gave final approval to the liquidation plan.
"This is a very sad day for management, the employees, customers and the community," the judge said.
Shareholders are likely to receive nothing, as is typical in bankruptcy cases. 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. They will pay a 70.5 percent return on merchandise.
It was unclear what would happen to the company's 765 retail stores and dealer outlets in Canada. Galardi told a judge there are still bids for the Canadian business.
"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.
Credit Suisse analyst Gary Balter told investors that Circuit City's demise will help Best Buy cement its position as the market leader.
"Losing Circuit (City) and what had previously been an $11 billion business, in addition to share gains from other smaller outlets, should help to partially offset weaker consumer spending as well as further secure Best Buy's position as the leader in the space," he said.
Shares of Best Buy Co. rose $2.44, or nearly 9 percent, to $29.58 in afternoon trading.
The liquidation of Circuit City follows the worst holiday shopping season in four decades. People have slashed their spending since the financial meltdown in September as they worry about their job security and declining retirement funds.
KB Toys 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.
The Circuit City move will also hurt the nation's malls, which have suffered from the rise in vacancies as other chains 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."
Circuit City filed for Chapter 11 in November as vendors started to restrict the flow of merchandise ahead of the busy holiday shopping season. It had been exploring its options 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 chain to sell electronic gadgets and rent movies and games. Blockbuster withdrew the bid in July.
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, it broke 150 leases at locations where it no longer operates stores and closed 155 stores in the U.S. in November and December.
AP Retail Writer Anne D'Innocenzio contributed to this report.
(Copyright 2009 by The Associated Press. All Rights Reserved.)