Ailing electronics retailer Circuit City Stores Inc. said yesterday that it would close 19 stores, five regional offices and a distribution center, launching a major cost-cutting campaign just one day after disclosing it has become the subject of a takeover bid.
About 430 full-time and 540 part-time employees will be laid off, the chain said. Most of the closing stores are in the Midwest -- in Ohio, Illinois and Michigan -- but one store and the distribution building are in Virginia.
The Richmond electronics retailer on Tuesday received a $3.25 billion takeover bid from Boston hedge fund Highfields Capital Management LP.
(Joe Mahoney -- Bloomberg News)
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The company also said yesterday that it sold a building at its corporate headquarters in Richmond for a profit of $1.8 million.
A spokesman for the company, Bill Cimino, said the announcement was not a response to the $3.25 billion buyout offer from Highfields Capital Management LP, a Boston hedge fund that wants to take Circuit City private. Circuit City closed the same number of stores in February 2003.
Still, analysts said, the cuts reinforce Circuit City's growing vulnerability in an industry it soundly dominated just a decade ago. In 1996, Circuit City and Best Buy ran neck-and-neck in sales. Today, Best Buy controls 22 percent of the consumer electronics market, more than twice that of Circuit City.
"Circuit City just did not respond well to the challenge," said Robert Spector, a retail historian and author of "Category Killers," a book about big-box chains, who thinks Best Buy trounced its older competitor with bigger stores, better locations and stronger customer service.
Shortly after the announcement, the company reported that a corporate jet carrying four of its employees and four other people crashed near Pueblo, Colo. Wire services reported that the crash killed everyone on board. The plane was en route from Richmond. The company said none of the employees on board were officers.
Analysts warned that Circuit City's store closings, while trimming expenses, could make it even harder to compete. Dan Wewer, an analyst at CIBC World Markets, estimated that there are a dozen Best Buys within five miles of the stores Circuit City is closing. "We believe Best Buy will benefit from Circuit City's store closures," he wrote in a research note yesterday.
It was unclear yesterday what, if any impact the closings would have on Highfields' takeover bid. The cuts are in line with what analysts predict will be a cost-cutting turnaround strategy for the fund.
Some noted yesterday that Highfields has little experience operating a retailer. As a shareholder, the company has agitated for change at companies like Janus Capital Group Inc., Readers Digest Association Inc. and Adelphia Communications Corp.
But with the Circuit City takeover effort, it is moving into uncharted waters, said Charles J. Gradante, principal manager of the Hennessee Group LLC, which advises hedge fund investors. "I have never seen a hedge fund try to take a company private like this," he said. The hedge fund's managers, Jonathon S. Jacobson and Richard L. Grubman, did not return phone messages.
Circuit City chief executive W. Alan McCollough, who is trying to turn the chain around by aggressively relocating and redesigning stores, said the store and office closings are part of an ongoing initiative to "improve the company's overall financial performance."
In a written statement, McCollough said the 19 stores are "located in trade areas that we believe can no longer support" them. In some cases, he said, the chain has opened newer stores nearby; in others, competitors have eaten into Circuit City's profitability.
Circuit City said sales at each of the 19 closing stores averaged $9 million -- roughly half the average at the chain's 630 stores, analysts said.
"We would like to see a more aggressive store-closing agenda," said David A. Schick, an analyst at Legg Mason Wood Walker Inc.
Circuit City said it plans to close four stores each in Ohio and Michigan; three in Illinois; two each in Indiana and Texas; and one in Virginia, Kansas, Wisconsin and Tennessee. The Virginia store is in Lynchburg.
The distribution center, in Doswell, Va., employs 63. Shutting down the regional offices in Cincinnati, Dallas, Detroit, Miami, and Charlotte will not result in any layoffs, Cimino said. The company will take a $30 million charge tied to the store and regional office closings.
