By Mike Caggeso
Circuit City Stores Inc. (CC) will close 155, or 20%, of its 566 U.S. stores by Dec. 31 and slash its domestic workforce by about 17% as the fledging electronics retailer scrambles to conserve cash and reverse six consecutive quarters of falling sales.
In the, Circuit City said it is closing stores in 55 metro areas and will exit 12 markets entirely. It also said it is reducing future store openings, “aggressively” renegotiating current leases and considering “all available options and alternatives to restructure its business.”
The release also throws a lot of blame, citing “waning consumer confidence,” a “significantly weakened retail environment” and “unfavorable macroeconomic conditions.”
Circuit City also said it is waiting for nearly $80 million tax rebate it believes the federal government owes the company.
That figure is nearly twice its shrunken market cap.
“Since late September, unprecedented events have occurred in the financial and consumer markets causing macroeconomic trends to worsen sharply. The weakened environment has resulted in a slowdown of consumer spending, further impacting our business as well as the business of our vendors,” James A. Marcum, vice chairman and acting president and chief executive officer, said in the release.
“The combination of these trends has strained severely our working capital and liquidity, and so we are making a number of difficult, but necessary, decisions to address the company’s financial situation as quickly as possible.”
Missing from his statement is the fact that the electronics industry has widened over the past decade – growing popularity of DVDs, video games, HDTVs computers and laptops, cell phones – spawning new competitors such as GameStop Corp. (GME) and Apple Inc’s (AAPL) iTunes in addition to its chief rivals Wal-Mart Stores, Inc. (WMT), Target Corp. (TGT) and Best Buy Co., Inc. (BBY).
And those other companies are doing a much better job pushing the same merchandise off their shelves than Circuit City.
To gauge how steep an uphill battle Circuit City has, it helps to look back key moments in its decline.
Over the past year and a half, the company has 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) – another fading national company – made an unsolicited $1 billion acquisition bid for Circuit City for at least $6 a share. The idea was to create a supermedia retailer that might be more competitive.
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 through a $2.1 billion 50-50 joint venture with London-based Carphone Warehouse Group PLC.
In June, it suspended its 4-cent dividend. And in September, CEO and President Philip Schoonover resigned on the spot.
All that carnage has caused Circuit City’s stock tofall 99% in the past year and a half – from about $30 a share to its current price of 36 cents a share.
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