Why is it so hard for everyone discussing Circuit City's Chapter 11 filing and New York Stock Exchange stock suspension to tell the world what really happened with this company?
No, Circuit City isn't dying because of the credit crunch, and there's no way we can blame its demise on the preferential treatment competitors like Best Buy are receiving. And we certainly can't blame it on the online-retail industry.
For some reason, every story I see written about the topic gives the company line--Circuit City is forced to file for Chapter 11 protection because of the "tight credit market"--and yet no one tells it like it really is: Circuit City is dying today, and will be a mere memory in just a few short months, because the company's executives ran the business into the ground.
Some believe that with the online onslaught being what it is, there's really only room for one major electronics retailer in the brick-and-mortar space. Anyone who believes that has no grip on reality.
There is room for multiple big-box electronics retailers. If Circuit City executives established a business model that competed with Best Buy's instead of trying to copy it, none of this would have ever happened, and we would be wondering which retailer will have the better holiday shopping season.
Instead, we're digging Circuit City's hole.
There's no debating that Circuit City is subject to the economic downturn; every company is feeling the crunch. But we don't see every other retailer closing stores and laying off thousands of employees because of a "credit crunch." The way I see it, Best Buy is largely insulated from much of these troubles because its executives established a business model that helps it maintain stability. Circuit City executives were too busy ruining the company to figure out how to fix it.
"Over the past several months, consumers have been unable to borrow funds through credit cards, let alone home equity loans, to purchase household and other electronics products," Bruce Besanko, Circuit City's chief financial officer, said in a court filing. "Without immediate relief, the company is concerned that it will not receive goods for Black Friday and the upcoming holiday season."
Wow. Does anyone else find that statement alarming? It's as if Circuit City's executives are playing with dynamite. Can someone explain to me how home equity loans come into the equation when discussing the consumer's unwillingness to buy electronics?
Ostensibly, Besanko is trying to make the point that consumers can't afford their homes, so their desire to buy electronics is diminished. But if Besanko looked at recent filings from Amazon.com and Best Buy, he would know that, yes, consumers still are buying electronics; they're just not doing it at Circuit City.
Even more alarming in that statement is Besanko's comment that the company is concerned it won't be able to get "goods." Are you kidding me? Doesn't Besanko and the rest of his cohorts understand the gravity of not having goods in stores and ready for shoppers a mere three weeks before heavy shopping starts? Call me crazy, but I'm willing to bet that Best Buy is good to go with its Black Friday "goods."
Perhaps the most alarming example of executive misjudgment is shown in the incredible decline in shareholder value and stock price. On April 7, 2000, Circuit City's stock price was hovering at about $58 per share, and the company was issuing dividends to shareholders. Today, Circuit City's stock has been suspended by the NYSE.
During its 2005 fiscal year, Circuit City turned a profit of about $61 million. During its last reported quarter, the company lost $239.17 million. But it gets worse: the company's net change in cash--a good indicator of executive management--amounted to a loss of $512 million over the past four years. For a company of that size and magnitude facing the kind of issues it faced, that's simply unacceptable.
Knowing that Circuit City's executives over the past eight years have single-handedly ruined any prospect for growth, thanks to questionable decisions and poor management of company assets, the current team of executives wants to blame everyone else but themselves.
The numbers and the financial data speak for themselves; the only reason Circuit City is in ruin today is because of the company's executives. After all, Best Buy is competing in the same environment, and that company has performed extremely well. Why couldn't the sector's most prominent company from years ago have done the same?
It's unfortunate, but there's no saving Circuit City now. The game is over, and the retailer has lost. Now the time it has left can be counted in days and weeks, rather than months.
If I had to make a prediction, I'd say Circuit City will liquidate all assets by the end of the year.