Circuit City Files for Bankruptcy After a Year of Falling Sales and Corporate Cutbacks

By Mike Caggeso
Associate Editor
Money Morning

Circuit City Stores Inc. (CC) has filed for Chapter 11 bankruptcy, a week after the struggling electronics retailer announced it would close 155 of its 566 U.S. stores by Dec. 31 and slash its workforce by 17%. 

“The decision to restructure the business through a Chapter 11 filing should provide us with the opportunity to strengthen our balance sheet, create a more efficient expense structure and ultimately position the company to compete more effectively,” James A. Marcum, vice chairman and acting president and chief executive officer, said yesterday (Monday) in a statement.

In the past year and a half, Circuit City has created nothing but a collection of ugly headlines. The Richmond, VA-based Circuit City has $3.4 billion in assets and $2.32 billion in liabilities, including a $119 million debt to Hewlett-Packard Co. (HPQ) and a $116 million debt to Samsung Electronics Co., Bloomberg reported. 

Most recently, the fledging electronics retailer announced it would close 155, or 20%, of its 566 U.S. stores by Dec. 31 and slash its domestic workforce in an effort to conserve cash and reverse six consecutive quarters of falling sales.

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The company has already slashed retail management positions, eliminated jobs at its corporate offices and laid off 3,400 retail workers.

On March 28, it was ousted from the Standard & Poor’s 500 Index.

The following month, Blockbuster Inc. (BBI) made an unsolicited $1 billion acquisition bid for Circuit City, offering at least $6 a share. The idea was to create a “supermedia” retailer that might be more competitive against such rivals as Best Buy Co. Inc. (BBY). But that offered fizzled.

In May, the company put itself on the auction block, a day after Best Buy announced plans to open stores in Europe via a $2.1 billion, 50-50 joint venture with London-based Carphone Warehouse Group PLC.

In June, Circuit City suspended its 4 cent dividend. And in September, President and CEO President Philip Schoonover resigned on the spot.

Circuit City has lost more than $5 billion in stock-market value in the past two years, Bloomberg reported.

News and Related Story Links:

• Bloomberg:
  Circuit City, Electronics Retailer, Seeks Bankruptcy

• Circuit City:
  Circuit City Stores, Inc. to Reorganize Under Chapter 11

• Money Morning:
  Battered Circuit City Closing 155 Stores, Scraping for Capital

• Providence Business News:
  Tweeter chain to close after 36 years