Circuit City liquidation sparks a Black Saturday

Shoppers eager to grab their share of discounted plasma TVs and Blu-ray DVDs lined up in droves today as Circuit City stores began liquidating their inventory. The bankrupt electronics retailer is shutting down its 567 U.S. stores and laying off 34,000 workers.

By late morning, the line outside the Circuit City in Hollywood, CA was almost 100 people long. Carlos Reyes, 24, and girlfriend Diana Anzora, 22, of Los Angeles, lined up to buy video games and DVDs.

The scene outside the store looked very similar to that on Black Friday, Lobel said. A steady stream of customers had been lining up outside since the store opened at 10 a.m., said store director Jesse Alcaraz. A handful of them read books to pass the time. Some called friends to pass on the word about the sale.

Inside, the atmosphere was busy but not hectic, as customers mostly flocked to TVs and browsed bins of marked-down PlayStation and X-Box games. Merchandise was marked 10%, 20% and 30% off.

By 5 p.m., the Circuit City in Glendale was running low on popular merchandise, having sold out some television monitors. Laptop computers were also in high demand, said Miguel Hernandez, Glendale store manager.

Today's sales were up 25% compared with most days, and the store had four times as many customers as normal for a Saturday, Hernandez said.

"We have a long line inside the store," he said. "A few of the other stores are like Black Friday all over again, from what I heard."

The Circuit City stores in Hollywood and Montebello were the busiest in the area, he said.

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Circuit City files for bankruptcy protection

Circuit City is in the news today with reports that they are filing for bankruptcy.

Circuit City Stores Inc. filed for bankruptcy protection on Monday heading into the busy holiday season as analysts question whether the nation's second-biggest electronics retailer will be able to survive.

The company said it decided to file for bankruptcy protection because it was facing pressure from vendors who threatened to withhold products during the holiday period. The company also said it cut 700 more jobs at its headquarters, after announcing a week ago that it would close 20 percent of its stores and lay off thousands of workers.

Circuit City filed for Chapter 11 protection, which will allow it to hold off creditors and continue operations while it develops a reorganization plan. Its Canadian operations also filed for similar protection.

Doing so "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, said in a statement.

Shares in Richmond, Va.-based Circuit City fell 14 cents, or about 56 percent, to 11 cents on Monday before being halted.

Circuit City, which has had only one profitable quarter in the past year, has faced significant declines in traffic and heightened competition from rival Best Buy Co. and others. The company laid off about 3,400 retail employees last year and replaced them with lower-paid workers, a move analysts said could backfire, hurting morale and driving away customers.

While the retail industry overall is facing what's expected to be the weakest holiday season in decades, Circuit City's struggles have intensified as nervous consumers spend less and credit has become tighter.

In court documents, Chief Financial Officer Bruce H. Besanko said three factors led to the bankruptcy filing: erosion of vendor confidence, decreased liquidity and the global economic crisis.

"Without immediate relief, the company is concerned that it will not receive goods for Black Friday and the upcoming holiday season, which could cause irreparable harm to the company and its stakeholders," Besanko said in the filing.

The company's biggest creditors are its vendors: Hewlett-Packard has a $118.8 million claim followed by Samsung ($115.9 million), Sony ($60 million), Zenith ($41.2 million), Toshiba ($17.9 million) and others. Smaller creditors include GPS navigation system maker Garmin, Nikon, Lenovo, Eastman Kodak and Mitsubishi.

Stifel Nicolaus & Co. analyst David Schick said in a note to investors that since Circuit City is a well-known brand it could re-emerge from bankruptcy, saying "We believe the marketplace has a slot for a higher-end chain with a commissioned sales force."

But Stephen Lubben, the Daniel J. Moore professor of law at Seton Hall Law School, said the company's surivial depends on "whether these folks here like Sony and Hewlett-Packard are going to be willing to work with Circuit City going forward or whether they think they're a lost cause and cut them off permanently."

Lubben said it has the added burden of facing Chapter 11 at a difficult time for retail.

Meanwhile, Deutsche Bank analyst Mike Baker told investors that consumers learning about Circuit City's bankruptcy may choose elsewhere due to a lack of confidence in the company.

Circuit City Stores Inc. announced a week ago it planned to close 155 of its more than 700 U.S. stores by Dec. 31. It is laying off about 17 percent of its domestic work force, which could affect up to 7,300 people.

"This isn't a surprise," JPMorgan analyst Christopher Horvers said of the bankruptcy filing, adding that the reorganization could help the company get out of leases for certain bad store locations.

Circuit City had also said last week that it would further cut back on new store openings and planned to work with landlords to renegotiate leases, lower rent or terminate agreements while it dealt with tightening credit from its vendors.

"At the end of the day I think it's really about an inventory position," Horvers said. "If they can get inventory into the stores, I can think they'll remain competitive."

Horvers also found it encouraging that the company was able to secure financing. Circuit City said it had lined up $1.1 billion in loans to provide working capital while it is in bankruptcy protection. That replaces a $1.3 billion asset-backed loan it had been using.

Loans to operate while in bankruptcy are called debtor-in-possession, or DIP, loans.

"That's a big DIP in the current market," said John Penn, a partner at law firm Haynes & Boone who is not involved in the case. "To secure that size DIP now is quite a achievement. With the news of the cuts last week -- and vendors wanting to know they can get paid -- having a recognizable source like a DIP can calm a lot of vendor concerns."

The company said in its filing that it had $3.4 billion in assets and $2.32 billion in liabilities, as of Aug. 31.

Circuit City posted a wider second-quarter loss in September with a 13 percent decline in sales at stores open at least a year. The company has been under new leadership since late September when Chief Executive Philip J. Schoonover agreed to step down.

Shares in Circuit City have traded under $1 for more than a month and the company received a warning about that last month from the New York Stock Exchange.

Circuit City to Shut 155 Stores, Cut Jobs

Circuit City is shutting down 155 U.S. stores and slashing 17 percent of its workforce as sales continue to slump along with a sharp slowdown in consumer spending, the company said yesterday.

The struggling Richmond-based electronics retailer said it hopes the moves will help cut costs and conserve cash. Several of its vendors have begun to limit credit, including requiring payment before the goods are shipped, the company said. Some vendors have also refused a traditional increase in Circuit City's credit to purchase holiday merchandise.

"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," chief executive James A. Marcum said.

The affected stores -- about one-fifth of Circuit City's locations -- are scheduled to close today and reopen tomorrow to begin the liquidation sale, the company said. The three Virginia stores being shut are on Chain Bridge Road in McLean, Davidson Place in Manassas and Albemarle Square in Charlottesville. The three Maryland locations going dark are on Pulaski Highway in Baltimore, Baltimore Avenue in Beltsville and 32nd Avenue in Marlow Heights.

Circuit City said it expects the sales to be completed before the year is over and is working to end or renegotiate its store leases.

Roughly 7,300 workers will be affected by the closings, or about 17 percent of the company's 43,000 U.S. employees, the company said. Circuit City spokesman Bill Cimino said some workers may be able to transfer to other stores and said severances have not yet been determined.

The firings come in advance of a holiday season when retail hiring is expected to be at its lowest level since 2001, according to placement firm Challenger, Gray & Christmas. The firm estimated that retailers hired about 585,300 employees that year compared to the annual average of 727,500 over the past decade.

Christmas is the busiest time of year for retailers, accounting for about 20 percent of annual sales. David Urban, a marketing professor at Virginia Commonwealth University who has long followed Circuit City, said he had expected the company to limp through the holidays in hopes of a sales boost that would help refill its coffers. Its decision to cut its losses underscores Circuit City's dire straits, he said.

"This is clearly a company that is trying to pull out all the stops in an effort to survive," he said. "They're not waiting around, and they're doing what they can to liquidate as much inventory as they can."

Cimino said the company decided to announce the closings before the holidays in hopes that customers would shop for deals. Circuit City will still match its competitors' prices, he said.

"We were looking basically to use the increased traffic and consumer spending of the holidays to help with the process," he said.

The 155 stores slated for closure account for about $1.4 billion in annual sales, or 12 percent of the company's revenue, but executives said they were all unprofitable. Stacey Widlitz, an analyst with Pali Capital Research, said in a research note that she expects the deep discounts during the closings could hurt Circuit City's competitors this holiday but be beneficial in the long term.

"Clearly these store closings are just the beginning," she wrote.

The closings are the latest turbulence at the nation's second-largest electronics retailer. Last month, the New York Stock Exchange warned the company that it is in danger of being delisted because its closing stock price averaged less than $1 over a 30-day trading period. Its second-quarter losses ballooned to nearly $240 million while cash flow dropped to less than $100 million. Last fiscal year, Circuit City lost $320 million, its worst performance ever.

The company's last reported a quarterly profit during the first quarter of last fiscal year and annual profit in fiscal 2006.

"The weak consumer spending environment and deceleration in key product categories make it unlikely that Circuit City will be able to return to profitability in the near future," Pacific Crest Securities analyst Andy Hargreaves wrote in a recent note.

Earlier this year, activist investor Mark Wattles sparked a proxy battle when he called for the removal of then-chief executive Philip J. Schoonover and the sale of the company. In April, Blockbuster made an unsolicited bid for the retailer but pulled out a few months later as the economy continued to curdle. Marcum was appointed in September to lead the company.

Marcum said yesterday that the company is considering "all available options and alternatives" as it attempts to turn around the business. Circuit City also plans to e-mail a letter to customers explaining its decision and holding out hope for the future.

"We will now be better positioned to focus our resources on a smaller number of stores so that we can ensure better overall service during this holiday shopping season and beyond," the letter says. "Our continued promise is to put you first."

Circuit City stock rose 10 cents yesterday, or 38 percent, to close at 36 cents.