By Ylan Q. Mui
Washington Post Staff Writer
Tuesday, November 4, 2008
Circuit City is shutting down 155 U.S. stores and laying off 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 hoped the moves would 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 expected 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 with 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 expected 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 was 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 last reported a quarterly profit during the first quarter of last fiscal year and an 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 was 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.