Circuit City Files for Bankruptcy Protection
Monday, November 10, 2008; 10:05 AM
Richmond-based Circuit City, the nation's second largest electronics chain, filed for Chapter 11 bankruptcy protection this morning, one week after announcing it would close one-fifth of its stores in a nationwide effort to cut costs and conserve cash in an increasingly grim retail climate.
With the holiday shopping season looming, Circuit City Stores Inc. said it planned to stay open for business while it developed and executed a "comprehensive corporate restructuring plan."
The bankruptcy filing was one of several developments today that reflect the ongoing economic downturn. Federal officials said they were expanding their effort to save insurance giant AIG from financial ruin; DHL announced it would discontinue its money-losing U.S. domestic services as of Jan. 30 to focus on European and international business; and mortgage giant Fannie Mae said it lost $29 billion in the third quarter and was nearly out of cash.
Circuit City said it hoped the bankruptcy would allow it to keep its stores stocked with merchandise in the crucial weeks before Christmas, by allowing the company to assure vendors they would be paid. Circuit City said it is asking the U.S. Bankruptcy Court for the Eastern District of Virginia to make wage and salary payments and honor returns, exchanges, gift cards and other customer programs.
The company pledged to streamline costs and create a more efficient operation. It negotiated a commitment for a $1.1 billion debtor-in-possession revolving credit facility to provide immediate liquidity and supplement working capital.
"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," James A. Marcum, vice chairman and acting president and chief executive officer, said in a news release. "Our stores remain fully operational, and our associates are focused on consistent and successful execution this holiday season and beyond."
Circuit City has struggled in the face of competition from rival Best Buy Co. and others. It lost $320 million last year, its worst performance ever, and has not reported a quarterly profit since the first quarter of last fiscal year.
Last Monday, Circuit City announced it would close 155 U.S. stores and lay off nearly 20 percent of its workforce. The stores that will be shuttered are currently selling deeply discounted merchandise at liquidation sales.
Three stores each will close in Virginia and Maryland. The Virginia stores are located on Chain Bridge Road in McLean, Davidson Place in Manassas and Albermarle Square in Charlottesville; The Maryland stores are on Baltimore Avenue in Beltsville, 32nd Avenue in Marlow Heights and Pulaski Highway in Baltimore.
"We know there is never a good time for individuals to be impacted by decisions like these, and we deeply regret the effect this has on our associates," Marcum said.
The DHL announcement said the shipping and logistics giant would slash U.S. operating costs by more than 80 percent, cutting 9,500 employees from a U.S. payroll of about 13,000. The company will close all its U.S. ground hubs and reduce the number of stations it operates from 412 to 103.
"When we looked for efficiencies in the U.S. Express market, we decided to focus on what we do best as a company, and that's international shipping," John Mullen, global chief executive officer of the company, said in a statement. " . . . This is the right move for our U.S. Express operations given the current economic climate and for the long run."