Circuit City to close 155 stores
Considering filing Chapter 11 in 2009Circuit City Stores Inc said it would close 155 U.S. stores and was considering all options to restructure in the face of a deteriorating cash position and tighter credit terms from vendors.
The store closures will help to give the No. 2 U.S. consumer electronics chain more time to participate in the holiday shopping season, but analysts said the company could still seek bankruptcy protection in the next few months.
"I think at this point they should be able to get through December," Anthony Chukumba, an analyst with FTN Midwest Securities, said after the closures were announced on Monday.
"We could see additional store closings and/or a Chapter 11 bankruptcy filing after the holidays," he said.
Circuit City, which will operate 566 stores after the closures, has posted losses in five of the last six quarters and shed market share to rivals such as Best Buy Co and Wal-Mart Stores Inc.
In recent weeks, suppliers being pinched by the global financial crisis and credit crunch have tightened terms and in some cases now require up-front payment for inventory before they will make shipments, the company said.
Circuit City said it would cut its U.S. workforce by 17 percent with the store closings, which would result in it exiting markets such as Phoenix and Kansas City, Kansas.
It declined to specify the number of employees affected.
The company had nearly 46,000 employees at the end of February, according to its website.
Circuit City shares, which now trade under $1.00, were up 46 percent in afternoon trading.
Shares of sector leader Best Buy, which has said it could view store closures by rivals as an expansion opportunity, were up about 3 percent.
Circuit City said stores on the closure list would not be open on November 4 ahead of closing sales starting on November 5.
It said it expected the sales to be completed no later than the end of the year.
"This does not preclude (Circuit City) from filing for Chapter 11 later on, or even in a worst-case scenario, completing liquidating the entire chain," Chukumba said.
Workers at a Circuit City store in New Jersey that is not set to close said the news was unsettling.
Employees "are all nervous," said Anthony, a computer sales associate, who declined to give his last name. "We're trying to fight to stay open."
Another worker, Marko, said business at the store was slower. "People aren't going to buy plasma TVs when they can't buy milk," he said.
Circuit City said it had worked hard to secure support from vendors but "the current mix of terms and credit availability is becoming unmanageable."
Analysts have said that Circuit City, which cited vendor support when it posted a wider quarterly loss in September, was particularly vulnerable if suppliers changed terms.
"At this point, we believe that a bankruptcy filing for CC (Circuit City) is largely unavoidable," Colin McGranahan, an analyst at Sanford C. Bernstein, said in a research note.
Circuit City is exiting 12 U.S. markets and closing stores that contributed about $1.4 billion in annual sales.
Apart from pulling out of some markets, it is closing most stores in Atlanta and Cleveland. Details on the store closings were posted on the company's website.
U.S. retailers are heading into the bleakest holiday sales season in years as a housing slump, credit crisis and job losses force consumers to rein in spending.
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Electronics is one of the most competitive spaces in retail, and analysts expect the store closures to benefit Best Buy and other stores that sell electronics, such as Sears Holdings and regional chain hhgregg.
"We think this is a huge positive for Best Buy as they take up the sales from closed Circuit City stores in addition to having increased leverage with suppliers," Chukumba said.
Minneapolis-based Best Buy, which has been expanding its international presence and gaining U.S. market share in computers and cell phones, recently said it may snap up stores closed by distressed rivals.
"If store fronts close, a big number, you can bet that we will jump in and connect with those customers ... and take advantage," Best Buy President and Chief Operating Officer Brian Dunn said at company headquarters last week.
"If there's a big opportunity, we're going to absolutely go after it," Dunn said.
Circuit City said in late September that it could close stores as part of a turnaround plan and would suspend store openings during the 2010 fiscal year.
On Monday, Circuit City said it would not open at least 10 locations that were planned for the current fiscal year.
It also said it was seeking to renegotiate certain leases to either lower the rent or exit locations. The company is locked into leases for hundreds of stores that are in poor locations or have old formats.
Circuit City shares were up 12 cents at 38 cents in afternoon trading. Last week, Circuit City was notified by the New York Stock Exchange that its shares were subject to delisting because the average closing price was less than $1.00 per share for a 30-day trading period.
Best Buy shares were up 84 cents at $27.65.