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
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
"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.)