After Best Buy mega-stored Circuit City to oblivion, the hapless retailer has quickly gone to pieces.
On Friday, Circuit City said it was liquidating all of its stores. Then, on Saturday, there was a big liquidation sale at my local Circuit City--up to 30 percent off. The checkout line was almost as long as the lines you encounter on a typical Saturday at Fry's--the mostly California- and Texas-based sprawling electronics warehouse. (The line actually snaked to the back of the store.)
Understand that I'm not giving Fry's any backhanded praise. Fry's is so big, so unwieldy, and, in some respects, its sales policies so lax that, as a rule, I avoid it (unless I need a nuts-and-bolts item like a Torx screw).
But Fry's is still a going concern. Circuit City isn't. The store that I visited on Saturday had been taken over lock, stock, and barrel by the liquidator. I interviewed (very briefly because she was on checkout duty) the "store manager" who said that, as of Saturday, her new immediate boss was the person from the liquidation company. That person, in effect, was now running the show, she said.
My local Circuit City (in southern California) on Saturday had lines inside as long as Fry's--though that isn't necessarily a compliment
(Credit: Brooke Crothers)Inside, it was close to pandemonium. (The manager would not let me take pictures inside the store.) Consumers swarming everywhere: every one of them with at least a few breathless questions and scant employees to provide answers. And consumers seemingly snapping up anything that wasn't nailed down. (I've never seen so many HP wide-screen monitors in one checkout line.)
One male employee in the section I was browsing, spent most of the time I was there (about 15 minutes) pleading ignorance and searching for a manager who never (apparently) materialized.
A female employee I talked to outside (she was on break) said no one knew it would happen--until it happened.
What was ironic (and sad) was that I had been to this same Circuit City a few weeks before and an employee had boasted that this store would not close (in the wake of the limited nationwide store closings Circuit City had announced in November) and would be around for a long time.
My take as a consumer? The sheer scale, selection, organization, and relative attention to display detail that one senses at Best Buy proved to be a huge disincentive for going back to Circuit City--and CompUSA for that matter. Statistics don't lie. I have been to Best Buy dozens of times in the past two years. I've been to Circuit City--even though it's closer--maybe six times, and always as a last resort.
Ask your casual consumer, who is familiar with both stores, why Circuit City failed and the answer is often summed up in two words: Best Buy. Others will say Amazon--but that's another story.
After exploring other options, Circuit City said Friday it will begin liquidating all remaining stores.
Circuit City calls it quits.
(Credit: Circuit City)About 30,000 employees face layoffs as the rest of its 567 stores are closed. The fates of outstanding warranties, its Firedog repair service, and Canadian stores are still to be determined, according to the company.
The nation's second-largest consumer electronics retailer filed for bankruptcy in November and initially closed 155 retail outlets in an attempt to get its roughly $2 billion debt under control. Just a week ago, Circuity City announced it was in talks for a sale with two "highly interested" parties. After the talks broke down, the company said, it had no choice but to liquidate all remaining merchandise and shut its doors.
"We are extremely disappointed by this outcome. The company had been in continuous negotiations regarding a going concern transaction. 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 to structure a going-concern transaction in the limited timeframe available, and so this is the only possible path for our company," James Marcum, acting president and chief executive officer for Circuit City, said in a statement.
The disappointing, recession-weakened holiday season likely sealed the retailer's fate, although the real problems began before the economic downturn. The retailer had posted several huge losses late 2007 and early 2008, but the rash of bank failures in September and October proved disastrous for it.
The resulting global credit crunch hit Circuit City hard. The retailer buys TVs, stereos, laptops, and other gadgets on credit, usually at a good rate from vendors with the promise to pay them back once the company sells the goods in its stores. But as the company racked up huge losses, and credit became suddenly more expensive, vendors stopped giving Circuit City reasonable financing rates.
This was originally posted at ZDNet's Between the Lines.
Circuit City said Friday that it is in talks with "two highly motivated and interested parties" about selling the company as a going concern. Meanwhile, Best Buy, the largest electronics retailer in the U.S., reckons it continues to take market share.
Circuit City asked the bankruptcy court to approve procedures that officially would sell Circuit City in total, by business units, or by assets such as inventory.
In a statement, Circuit City said:
These interested parties are considering providing additional financing to allow the company to sustain operations and move forward with a subsequent restructuring through a stand-alone plan and/or purchasing the company or all or substantially all of the company's assets. The parties have substantially completed due diligence and now are in negotiations with the company and the company's major stakeholders in order to finalize such a transaction. While the company is optimistic that a transaction can be successfully finalized, no assurance can be given that this will occur.
If these transactions don't occur by Jan. 16, Circuit City could liquidate.
Separately, Best Buy narrowed its financial outlook. Best Buy on Friday said its holiday revenue was in line with revised expectations, but same store sales fell 6.5 percent.
The electronics retailing giant made the announcement at the Consumer Electronics Show.
By the numbers:
• Revenue was up 4 percent for the month ending Jan. 3 to $7.5 billion, in line with expectations.
• Best Buy narrowed its earnings targets. The company is predicting fiscal 2009 earnings to be $2.50 to $2.70 a share, excluding a $111 million investment impairment charge. The company had projected 2009 earnings between $2.30 and $2.90 a share.
• The company will take a fiscal fourth quarter charge of $60 million for its voluntary severance program.
Here's the breakdown of sales by category:
Editor's note: This is part of a series of stories about the recession's effect on the tech industry.
Note: This article has been corrected to reflect that Ultimate Electronics is not going out of business, as previously stated.
When Circuit City management told employees to arrive at their respective stores one hour before opening in early November, everyone knew something was up.
Except T.K. Campo.
The 21-year-old wasn't able to go in early, and arrived at his job stocking shelves at the Scottsdale, Ariz., store to find his fellow employees just standing around, looking generally shocked and upset--and, conspicuously, not working.
That's when he got the news. "They told me we were closing down. From then, there was this giant, somber mood throughout the whole store. Everyone was going to lose their jobs, and people were really upset. At least one person was crying."
(Credit:
T.K. Campo)
Campo's store was one of the 155 stores that Circuit City announced it would be closing to get the struggling retailer back into good financial health. Overall, 17 percent of the workforce was to be cut. Just a week later, the chain filed for Chapter 11 bankruptcy.
The recession has claimed hundreds of thousands of jobs here in the U.S., but unemployment is having a secondary effect on retailers. It has killed consumer confidence, and hawkers of expensive gadgets like Circuit City, and Tweeter, have been hit hard.
As disappointing as it was for Campo to lose a job that he liked, this 21-year-old has more responsibilities than most of his peers working retail. He's a single father who recently won joint custody of his 2-year-old son. Campo is also putting himself through school, studying math with hopes of becoming a high school calculus teacher.
But his priority right now is making his child support payments.
"I can always take little break from school, but (working is) always to provide more for my son," he said during a telephone interview. "At Circuit City, I would have been able to move up, and eventually get more money. But that opportunity's kind of gone now."
Campo has been working at the Scottsdale store since May--he'd been laid off from his previous job as a line cook after he went on disability leave with a broken arm. But he took a liking to his work stocking shelves at Circuit City, updating prices, and interacting with customers. But most of all, he enjoyed his 40-some co-workers.
"I befriended just about everyone that works there. For the most part, everyone that's left is a tight group."
Over the past month the group has found more ways to bond since the news of their store getting shut down. Knowing that there is a definite end date to their employment, the store "became this relaxed environment," Campo said. If they can't help a customer, nobody stresses out. Some phones go unanswered, and just "general messing around" ensues.
But they know they still have work to do.
The liquidators--the company that bought up the store's debt and inventory--came in a few days after the announcement, put up store closing signs, and changed all prices to the MSRP (manufacturer's suggested retail price), then marked them down a bit more.
Once the signs went up, a frenzy of bargain hunters descended on the store. But not everyone liked what they saw.
"Some (shoppers) got rude, some got really nasty," Campo recalled. "Some people would come in and tell us we deserve to lose our jobs because they're not happy with our prices, and unhappy we couldn't alter prices or return things anymore that had been purchased after liquidation. Some were unsure what to do if they had purchased (extended) warranties. I don't know...it seemed like some people enjoyed being unpleasant to us. There wasn't a lot more we could do for people."
... Read MoreBest Buy lowered its fiscal-year earnings forecast on Wednesday, citing fears that consumers will keep their wallets under lock and key during the holiday-shopping season.
president, Best Buy
Best Buy, which saw its archrival Circuit City file for Chapter 11 bankruptcy on Tuesday, said uncertainty surrounding consumer spending has made it difficult to project revenue for the rest of fiscal 2009, which ends February 28, 2009.
Uncertainty usually scares investors, who pushed Best Buy's shares down a steep 10.85 percent to $21.29 a share in early morning trading.
Best Buy CEO Brad Anderson sized up the current situation with this statement:
Since mid-September, rapid, seismic changes in consumer behavior have created the most difficult climate we've ever seen. Best Buy simply can't adjust fast enough to maintain our earnings momentum for this year.
We're beginning to adjust our cost structure to restore earnings momentum and still gain market share.
The electronics retailing giant cut its fiscal-year revenue guidance to between $43.7 billion and $45.5 billion. It lowered its estimates for earnings per share to $2.30 to $2.90. And sales at stores opened at least a year, or comparable sales, are expected to drop between 1 percent and 8 percent for fiscal 2009.
Back in September, Best Buy was projecting fiscal year revenue of $47 billion and earnings per share of $3.25 to $3.40. It also previously predicted that comparable store sales would rise 2 percent to 3 percent for the year.
But with its September same store sales falling 1.3 percent over the same period last year and its October same store sales dropping 7.6 percent year over year, the first two months of its fiscal third quarter are expected to put a drag on the electronic giant's holiday season.
For the remaining four months in its fiscal year, Best Buy is expecting comparable sales to drop anywhere from 5 percent to a whopping 15 percent.
Best Buy President Brian Dunn put the situation in historical perspective:
In 42 years of retailing, we've never seen such difficult times for the consumer. People are making dramatic changes in how much they spend, and we're not immune from those forces. That's why it's critical that we manage our spending, while preserving key growth initiatives.
(Credit:
Circuit City Stores / Richard Cadan Photography)
Struggling electronics chain Circuit City announced Monday that it has filed for chapter 11 bankruptcy.
Chapter 11 allows a company to hold off creditors while it attempts to restructure its finances. Circuit City said Monday that it has negotiated a commitment for a $1.1 billion debtor-in-possession revolving credit facility to supplement its working capital.
Circuit City announced earlier this month that it would shutter 155 stores and lay off 17 percent of its workforce. The retailer said Monday that it will eliminate an additional 700 positions in addition to the reductions resulting from the store closings, bringing the total layoff projection to around 20 percent of its employees. According to the company's FAQ, in February it had approximately 45,900 employees, not including workers taken on during peak selling periods.
"We appreciate the support we have received from our lenders in the midst of such a tight credit market," acting CEO and vice chairman James A. Marcum said. "With this support, we believe we have the opportunity to leverage our market position and the strength of our brand to restore Circuit City to solid financial footing."
See also: "For Circuit City, holidays not looking happy."
While many retailers are understandably nervous about what this holiday will bring, none is likely more so than Circuit City.
Blockbuster rescinded an offer to buy the beleaguered chain earlier this year and its CEO stepped down in September. Its stock has been languishing below $1 for long enough that the company has been notified it could be delisted from the New York Stock Exchange. And now the company has been forced to close 155 stores right before the crucial holiday sales period because of the dearth of credit available in the market right now.
(Credit:
Circuit City)
For all intents and purposes, it appears the nation's second-largest electronics retailer is on the verge of disaster. Even if this season's sales results end up not being as bleak as some are predicting, it's unlikely even that could save Circuit City at this point. Circuit City did not respond to a request for comment for this article.
Though Wall Street analysts who watch Circuit City closest aren't ready to go on record to go on a death watch for the electronics chain, suffice it to say, its pulse is getting weaker and things aren't looking good.
The global credit crunch is hurting Circuit City in particular. The retailer buys TVs, stereos, laptops, and other gadgets on credit, usually at a good rate from vendors with the promise to pay it back once the company sells the goods in its stores. But as the company has racked up huge losses, vendors are not giving Circuit City reasonable financing rates. Though Circuit City hasn't come out and said so, some vendors could be convinced altogether that the retailer flat out won't be able to pay the money back and could decline to send Circuit City any products at all. At that point, it becomes almost impossible for Circuit City to operate.
Because of this, the business model of Circuit City and other electronics retailers doesn't work without very fast growth. And sales of many of the big-ticket items like notebooks, flat-panel TVs, and even gaming consoles (it's the first year in awhile there won't be a hot, new, hard-to-get console), are tapering off.
No doubt, the slumping economy is causing some consumers to be more conservative about purchases this year. Consumers polled by the Consumer Electronics Association say they plan to spend $200 less this year than last on holiday items.
Add to that a fundamental shift in the way media is consumed--more online video and digital downloads, slowly moving away from packaged media and accompanying players--and the future of the electronics retail business doesn't look so bright. As prices drop, it gets harder to grow business. And without that growth, it's impossible for Circuit City to pay back those loans, much less suddenly become profitable, said one analyst who asked not to be quoted. ... Read More
Circuit City Stores announced Monday it plans to close 155 stores and lay off 17 percent of its workforce in the U.S., as it aims to restructure its business amid a tightening credit market and downturn in business.
Over the past few weeks, the retailer's financial health has become more dire and, according to a report in The Wall Street Journal, was considering restructuring moves as a means to avoid a Chapter 11 reorganization bankruptcy filing.
(Credit:
Circuit City Stores / Richard Cadan Photography)
The struggling electronics retailer noted in its announcement that not only have its sales dropped amid an economic slowdown and loss in consumer confidence, but also its suppliers have begun cutting back on the level of credit they are extending to the retailer.
"The current mix of terms and credit availability is becoming unmanageable for the company," Circuit City noted in its announcement.
That cutback by suppliers comes at a critical time for Circuit City, as it heads into the holiday buying season when it wants to replenish its stock with the popular items.
The company plans to begin a liquidation sale at its 155 stores targeted for closing (PDF) on Wednesday and is expected to continue the sale through the rest of the year.
Circuit City also plans to scale back plans to open new stores to two from 12 in the current fiscal year and suspend all store openings for 2010. The company will continue to operate in 153 U.S. markets and overseas, but will be exiting 12 U.S. markets as a result of the restructuring.
Other woes for Circuit City include a potential delisting of its stock from the New York Stock Exchange. Last week, the NYSE warned the company its stock price had fallen below $1 for 30 consecutive trading days, a trigger point for a potential delisting.
The NYSE warned the company on Oct. 24 and Circuit City has 10 days to resolve the issue. One common means that companies use in this situation is a reverse stock split, in which investors who hold a certain number of shares can swap them for a single share in the issuer's stock. For example, 10 shares of stock trading at 50 cents each would become 1 share that trades at $5 a share.
In order to avoid filing for bankruptcy, Circuit City is weighing its options.
According to a report in The Wall Street Journal, the troubled electronics retailer is considering a plan to close some stores and cut thousands of jobs. The Journal cites "people familiar with the matter" who say Circuit City has also hired a bankruptcy firm, as well as a consulting firm and an investment bank to negotiate emergency financing.
Instead of filing for bankruptcy, one outlined plan calls for closing 150 stores, which would free up $350 million from inventory that could be used to pay off some of the company's debt.
The retailer said that for the record it is considering several options, but won't be discussing its plans publicly.
Circuit City is the U.S.' second largest electronics retailer behind Best Buy, and has 714 stores in the U.S., and 772 in Canada.
Things have gone from bad to worse for the retailer after posting huge losses earlier this year, followed by a buyout bid from Blockbuster, which failed, and Chief Executive Philip Schoonover's departure in September.
News that the company is considering filing for bankruptcy protection comes just before the all-important late-year holiday sales rush, which is unfortunate timing. Besides a dismal economy, and having to compete with Best Buy and Wal-Mart Stores on Black Friday prices, the company also must now deal with declining consumer confidence in a chain that may not make it to next year.
Philip Schoonover, chairman, president, and CEO of embattled electronics retailer Circuit City, resigned Monday, the company announced.
His resignation is effective immediately, and he will be replaced by James Marcum as president and CEO, and by Allen King as chairman of the board of directors.
Philip Schoonover
(Credit: Circuit City)Marcum joined Circuit City's board in June and was elected vice chairman in August. His specialty is electronics retail--he was selected in order to help the struggling retailer while it tries to right itself. He has helped several other specialty retailers while in the midst of their own turnarounds.
Newly installed chairman King said in a statement, "The board of directors is committed to accelerating the pace of the company's turnaround. Since he joined the board in June, Jim has been very effective in partnering with senior management and in helping identify opportunities to deliver increased value for our shareholders, customers, vendors and associates over the long term. We look forward to his continued contributions in this new important role."
Schoonover became company president in 2005, and ascended to the chairman and CEO's office a year later. But Circuit City has struggled. It posted a $200 million loss in December 2007, and has improved only moderately since then. The company expects to report losses in the range of $170 million to $185 million for the current quarter. Those results will be announced next week.
Earlier this year, a potential savior--albeit an unexpected one--appeared when Blockbuster announced it was interested in taking over Circuit City. The electronics retailer wasn't open to the video rental chain's advances, and one particularly vocal investor publicly encouraged Schoonover to consider the sale to Blockbuster or to a private equity firm.
Blockbuster withdrew its offer in July after perusing the retailer's books.
Circuit City is not the only electronics retailer struggling. CompUSA looked to be rescued when Mexican billionaire Carlos Slim Helu purchased the retail chain, only to close down much of the branches and sell the remaining few to a private equity firm last year, which sold the brand to Systemax.
Best Buy doesn't have the same problem. In the midst of an economic downturn, the company last reported earnings of $737 million.
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