Circuit City Shutting Down
Saturday, January 17, 2009
Circuit City agreed yesterday to close all its 567 stores and begin selling off its assets as early as today, throwing 34,000 employees out of work and becoming the first major post-holiday casualty of the retail slump.
Officials of the nation's No. 2 electronics retailer, which had been restructuring under Chapter 11 bankruptcy protection, and its creditors agreed to the closing after negotiations with two potential buyers seeking to continue the company as a going concern broke down. The company said that no value will remain for shareholders.
Circuit City's job losses will bolster the growing unemployment rate, which has risen from 5 percent in December 2007 to 7.2 percent last month and has been predicted to climb to as much as 9 percent this year.
About 2.6 million jobs were lost in 2008, with layoffs roiling through nearly every industry.
Over the last week, retailers and other businesses have rolled out a steady drumbeat of job cuts. This week, Saks announced it would cut about 1,000 jobs and Neiman Marcus said it plans to lay off 375 people. Pharmaceutical, health care and technology firms this week have indicated that they are cutting staff. Tens of thousands of workers at firms, including Hertz, Pfizer, WellPoint, Blue Cross/Blue Shield of Michigan and Advanced Micro Devices, are expected to lose their jobs soon.
"What you see in deep recessions is big layoffs and big bankruptcies," said John Challenger, chief executive of Challenger, Gray & Christmas, a Chicago-based outplacement consulting firm. "More people are out there chasing fewer jobs."
The difficulties experienced by Richmond-based Circuit City illustrate the challenges faced by an array of retailers who have used bankruptcy protection, store closings, drastic price reductions and layoffs to bolster their bottom lines in the wake of historically low holiday sales. The credit crunch has hit retailers particularly hard, limiting their ability to borrow to pay
suppliers and their customers' ability to purchase their merchandise.
Although Circuit City has been struggling for months, its end came quickly. The company filed for bankruptcy protection in November. In an effort to raise cash and trim costs, it closed 154 stores last month.
Yesterday, U.S. Bankruptcy Judge Kevin R. Huennekens in Richmond approved Circuit City's liquidation agreement, clearing the way for going-out-of-business sales to begin as early as today, officials said.
"We've got to be out of the stores by March 31. Close to $2 billion of retail inventory will be sold," Sandy Feldman, senior vice president of Great American Group, one of four firms hired to liquidate the assets, said in an interview yesterday. Feldman said his company also helped liquidate Linens 'N Things. "The sales will begin this weekend."
In recent weeks, Circuit City had been negotiating with two potential buyers and expressed hope that the company would be purchased as a whole and remain in business. But that option was taken off the table this week when the potential buyers were unable to raise funding.