October 28, 2020

Facing Bankruptcy, Circuit City Contemplates Store Closures

Circuit City (traded on the New York Stock Exchange under symbol CC) was founded in Richmond Virginia in 1949 and has grown to become such a giant as a specialty retailer of consumer electronics, home office products, entertainment software and related products that it currently has 714 stores in the United States and 772 stores and outlets in Canada and ranks number two only to rival competitor Best Buy (traded on the New York Stock Exchange under symbol BBY, source: finance.yahoo.com). But as of this writing (October 21, 2008) Circuit City closed out the trading day at a fresh 52 week low of $0.33. The once mighty store has been rumored as of late to be possible going into bankruptcy, which has led the higher ups of the company to face some tough choices.

According to the Wall Street Journal, Circuit City is contemplating the closure of 150 stores in an attempt to thwart bankruptcy. The Journal also reports that the company has recently hired Rothschild Inc. to assist in talks with banks in an attempt to secure emergency financing. The Journal goes on to report that the company also retained FTI Consulting to try to devise a turnaround plan. FTI has recently helped companies like Winn Dixie and The Bombay Company that were facing similar financial problems. As if all that were not enough, the company has also hired Skaddem, Arps, Slate, Meagher and Flom LLC, which is the firm that oversaw the bankruptcy proceedings of K-Mart (source: seekingalpha.com).

Meanwhile, Best Buy continues to open stores and take market share away from Circuit City (source: seekingalpha.com). One would think that Circuit City would be a great buy out opportunity for a larger company like Best Buy. But the debt they have accrued may make them a sour play. Besides, if they do go into bankruptcy, you may see a similar situation occur much like when Sears bought K-Mart out of bankruptcy a few years back.

Circuit City has its own share of benefits and limitations and if the debts continue to grow then it becomes difficult to handle the burden once the bankruptcy period is in its nascent stages and Personal Bankruptcy Basics do little in helping to get out of the situation and there comes a time when they have to be declared as non performing assets.

The company really couldn’t have picked a worse time to get into such financial disarray. With the increasing credit crunch everyone is having trouble finding the necessary funding to make it through tough times. Add that to the decreasing consumer spending and major lack of consumer confidence and the outcome probably won’t be pretty for Circuit City. Even if Circuit City closes the 150 stores it is contemplating, with the horrible holiday season that is almost sure to come, it may not be enough. If the trend continues, Circuit City may have no other choice but to either close additional stores early next year or find itself smack dab in the middle of bankruptcy court. It seems that Circuit City finds itself in the wrong place and definitely at the wrong time.