Bloomberg: Circuit City to Go Out of Business After 60 Years

[ThreeSportStar80]

Circuit City to Go Out of Business After 60 Years (Update1)
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By Steven Church and Mark Clothier


Jan. 16 (Bloomberg) -- Circuit City Stores Inc., the bankrupt consumer-electronics retailer, will shut down all of its 567 U.S. stores after failing to find a buyer that would keep the chain in operation.

Great American Group WF LLC; Hudson Capital Partners LLC; SB Capital Group LLC; and Tiger Capital Group LLC won the right to liquidate the company’s assets in a court-sanctioned auction. Circuit City creditors are guaranteed to get the first 70.5 percent of the value of the $1.2 billion to $1.3 billion in inventory. Stockholders will probably get nothing, Circuit City said today in a statement.
Sales declined at Circuit City, once the biggest U.S. electronics retailer, as it lost market share to Best Buy Co., Wal-Mart Stores Inc. and online retailers. On Nov. 10, it filed for bankruptcy in Richmond, Virginia, after suppliers cut off credit and demanded cash up front for shipments. At the time, Circuit City, which employs more than 30,000 people in the U.S., planned to exit court protection as a going concern.

“You can’t ignore the economic backdrop,” said David Schick, a retail analyst at Stifel Nicolaus & Co. in Baltimore. “Had Circuit run into all these problems and had to go Chapter 11 in any other year, they wouldn’t have had this outcome.”
Best Buy jumped $2.11, or 8.1 percent, to $29.34 at 4 p.m. in New York Stock Exchange composite trading, the largest increase in a month. The Richfield, Minnesota-based company is the biggest U.S. consumer-electronics chain.

Going-out-of-business sales at Circuit City’s remaining U.S. stores will start tomorrow and end by March 31. The liquidation agreement, which was approved by U.S. Bankruptcy Judge Kevin R. Huennekens, comes a day after the company held an auction described in court papers as its last chance to survive bankruptcy as a smaller chain. ‘Extremely Disappointed’ “The company had been in continuous negotiations regarding a going-concern transaction,” James A. Marcum, acting chief executive officer, said in the statement. “Regrettably for the more than 30,000 employees of Circuit City and our loyal customers, we were unable to reach an agreement with our creditors and lenders.”

Circuit City failed to negotiate a sale with Ricardo Salinas Pliego, Mexico’s fourth-richest man, or with Golden Gate Capital Corp., a San Francisco-based private-equity firm, company attorney Gregg Galardi told Huennekens at a hearing today. Neither could get financial support from lenders, who wanted suppliers to provide merchandise on credit, Galardi said. With more time, Circuit City could have sold a smaller package of stores as a reorganized company, Galardi said. He blamed the main committee of creditors for refusing to allow more time to negotiate a sale.

Hewlett-Packard, Samsung

That committee is dominated by suppliers including Hewlett- Packard Co., Samsung Electronics Co. and Toshiba America Consumer Products LLC. The group called a halt to negotiations because Circuit City couldn’t offer any evidence that a sale was possible, committee attorney Jeffrey Pomerantz said. Circuit City said it’s in discussions with bidders for its 765 Canadian stores and expects formal proposals by Jan. 23 from buyers who would continue to operate them.

Circuit City will get a $100 million letter of credit from the liquidators that it can draw from should they fail to realize a minimum amount from the sales. Before picking liquidators, the company had said it planned to collect a good-faith payment worth 10 percent of the value of its inventory.

Founded in 1949 by Samuel Wurtzel, Circuit City opened Richmond’s first retail television store. Rivals gained market share by offering Apple Inc. and Dell Inc. computers. Best Buy and Wal-Mart lowered prices on flat-panel TVs to lure U.S. customers, who are limiting spending because of rising unemployment and declining home values.

Firing Workers

Circuit City fired higher-paid workers in March 2007 and opened smaller stores to cut costs. Until then, the company’s strategy had been to rely on locations as large as 44,000 square feet (4,090 square meters).
Management tried to sell the company in May after movie- rental chain Blockbuster Inc. made a preliminary offer, which it withdrew a few months later.

The retailer hired FTI Consulting Inc. for restructuring advice and replaced CEO Philip Schoonover in September with Marcum, who has led two other retailers through bankruptcy.

On top of paying the 70.5 percent of inventory value, the liquidators will cover the cost of the going-out-of-business sale. Once those terms are met, the liquidators get a fee equaling 1 percent of the inventory’s value and 30 percent of the sale proceeds until they have accrued a total of 3 percent of the goods’ value. After that, Circuit City and the liquidators split sales 9-to-1.
In its Chapter 11 petition, Circuit City listed assets of $3.4 billion and debt of $2.32 billion.
The case is In Re Circuit City Stores Inc., 08-35653, U.S. Bankruptcy Court, Eastern District of Virginia (Richmond).
To contact the reporters on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net; Mark Clothier in Atlanta at mclothier@bloomberg.net
Last Updated: January 16, 2009 16:18 EST

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[tomson75]

Ugh...I hate Best Buy. Thank god I have a local Crutchfield.

[ThreeSportStar80]

Originally Posted by tomson75

Ugh...I hate Best Buy. Thank god I have a local Crutchfield.

You know I really don't have a preference however I've been a Circuit City shopper longer so it will definitely feel weird driving past the closed stores.

[Yeagermeister]

Originally Posted by tomson75

Ugh...I hate Best Buy. Thank god I have a local Crutchfield.

I call them Worst Buy

[theogt]

I've always thought CCs were poorly stocked and organized. I love Best Buy. I typically don't buy my electronics there, but I love to go in and browse, then I go buy cheaper online or at Fry's.

[Biggems]

i buy my DVDs from Circuit City......well I guess no more of that. Sadly, they just opened up the new Circuit City at 1604 and 34 in September....and now it is going out of business. I didnt like the new store anyway.....and I agree, they are poorly organized. There is a cutie that works there that I will miss eyein when I am perusing through the DVDs or playing the video games. But oh well.

I guess I can just buy online from now on.

[Danny White]

They just opened (about 4 months ago) a brand spanking new Circuit City near me.

I couldn't figure out why, since I had been hearing they were in trouble. It was a in a poor location, and there was never anyone shopping there.

One evening I went to Best Buy (about a mile away from this CC) and there were about 50 people shopping in the BB... I then went to CC and, I swear, there was absolutely not one single person in there! I thought to myself, this store is really struggling.

Not surprised to hear this if this is how poorly they plan their new stores.

Wonder if some good buys can be had there in the coming weeks?

[Viper]

I told a CC manager a year ago, with the way you treat your customers it won't be long before CC is nonexistent. Leaving you without a job. Today is the last time I ever step into a CC.

I feel for most of their employees, managements attitude toward their customers led them down this road.

[silverbear]

There goes one of my all-time favorite stores... note to self-- set aside some of your tax refund for one final trip to Circuit City...

[theogt]

Originally Posted by Danny White

I couldn't figure out why, since I had been hearing they were in trouble. It was a in a poor location, and there was never anyone shopping there.

I think you just cleared up your own confusion. Because it was a poor business decision is why they did it.

[DIAF]

i feel bad for the 34,000 people that are losing jobs, but honestly....**** Circuit City. They've been horrible for years, way worse than Best Buy (that takes some doing) and this is long overdue. I dance upon the grave of this POS company.

[tomson75]

Originally Posted by DIAF

i feel bad for the 34,000 people that are losing jobs, but honestly....**** Circuit City. They've been horrible for years, way worse than Best Buy (that takes some doing) and this is long overdue. I dance upon the grave of this POS company.

Um...ok? Take your DVD shopping a wee bit too seriously do we?

[DIAF]

Originally Posted by tomson75

Um...ok? Take your DVD shopping a wee bit too seriously do we?

More like I take getting lied to, poor service on multiple occasions, and being treated like crap by a bunch of moron teenagers that don't know the difference between an HDMI cable and Component a "wee bit too seriously".

[tomson75]

Originally Posted by DIAF

More like I take getting lied to, poor service on multiple occasions, and being treated like crap by a bunch of moron teenagers that don't know the difference between an HDMI cable and Component a "wee bit too seriously".

I'll take that as a "yes".

[HoleInTheRoof]

This doesn't suprise me at all. Where I live, there also is a CC about a 1/4 mile from a BB.

BB is always packed, and CC rarely had anyone in there.

The last time I went, the employees were blasting rap/hip hop from the stereos. And I mean, blasting at night club levels.

It was ridiculous.