NEW YORK (CNNMoney.com) -- Circuit City Stores Inc., the No. 2 electronics
seller after Best Buy, filed for bankruptcy protection Monday, hoping the move
will allow it to stock its shelves in time for the crucial holiday shopping
season.
The move comes about a week after Circuit City said it would close 155 stores
as it deals with a worsening economic downturn that has left more consumers with
less money to shop. The company intends to keep its remaining stores open
through the bankruptcy procedings.
Circuit City (CC,
Fortune
500) said it decided to file for bankruptcy at this time to ensure that it
would have "adequate merchandise flow to stores during the important holiday
season."
The retailer said consumers should continue to shop at its stores.
"Chapter 11 is not a closing or liquidation," the company said in an e-mail
to CNNMoney.com. "We remain committed to doing a better job of taking care of
our guests, and making it easier to shop at Circuit City."
For anyone that's on the hunt for a sweet deal on a flatscreen TV, Circuit
City spokesman Jim Babb said it's "safe to assume" that consumers can expect
deep discounts on TVs and other products in those Circuit City stores that are
being liquidated.
In the rest of its stores, Babb said the company's prices will remain
competitive with the market over the coming weeks.
Circuit City said it is seeking approval from the bankruptcy court to honor
customer programs such as returns, exchanges and gift cards. "Approval of such
programs normally is granted," the company said in the e-mail.
The electronics seller said it will still accept credit cards, including
Circuit City-branded credit cards, which the company said are not be impacted by
its bankruptcy.
Circuit City also said it will continue to honor its warranty plans,
including its Circuit City Advantage Protection Plans.
Despite these measures, one industry watcher remained unconvinced that
Circuit City could still attract shoppers from here on and especially through
the holiday season.
"Consumers will be skeptical about buying a $1,000 or $2,000 flatscreen TV
with a warranty at Circuit City," said Craig Johnson, retail analyst and
president of Customer Growth Partners. "In their mind, there's no guarantee that
the company will still be around in the future."
"Regarding gift cards, if you are buying a $50 gift card for Christmas, where
would your comfort level be higher? At a Circuit City or a Best Buy (BBY,
Fortune
500)?" Johnson said.
The company's bankruptcy filing was also made at a crucial time of the year
for merchants who are preparing for the year-end holiday shopping season.
The November-December period can account for 50% or more of retailers' annual
profits and sales. But this year, many Americans have clamped down on their
shopping habits amid a weak economy and a shaky job and credit market.
Industry analysts warn
that retailers will have to do whatever they can this year if they hope to have
at least decent holiday sales.
Will stay in business for now
According to the company's Chapter 11 filing with the U.S. bankruptcy court
in Richmond, Va., Circuit City has 566 operating stores in the United States and
will continue to do business and pay its workers while it restructures debt and
its business operations.
In announcing the store closings last week, Richmond-based Circuit City said
it would cut about 17% of its 40,000 domestic workers.
Johnson said Circuit City's problems are partly its own making. On the
external front, the retailer's competitive landscape has became much more
formidable as Best Buy continues to enhance its product offerings and service.
Circuit City has also felt the squeeze from discounters like Wal-Mart (WMT,
Fortune
500) who has aggressively expanded into electronics over the last few
years.
More importantly, Johnson believes Circuit City shot itself in the foot when
the company decided last year to fire more 3,000 of its highest-paid sales staff
and replace them with lower-paid workers.
"This was a huge strategic blunder," said Johnson. "People want a
knowledgeable sales person when they are spending $2,000 on a TV. They don't
want to buy it from some kid at Wal-Mart," he said
The company said it has negotiated a commitment for a $1.1 billion credit
line to supplement its working capital. The company said the credit line will
replace the company's $1.3 billion asset-based line provided by its lenders.
Circuit City said the credit line will give it immediate liquidity while it
works to reorganize the business and enable it to pay its vendors and employees.
"We recently have taken intensive measures to overcome our deteriorating
liquidity position," James Marcum, Circuit City's acting president and chief
executive officer, said in a statement.
"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," he said.
First Published: November 10, 2008: 8:22 AM ET