Circuit City to go out of business

Jan 17, 2009 (The Washington Times - McClatchy-Tribune Information Services via COMTEX) -- CC | Quote | Chart | News | PowerRating -- Circuit City Stores Inc., one of the Washington area's largest home-grown franchises, which began selling TVs in a Richmond store in 1949, will close its 567 U.S. stores and go out of business after failing to find a buyer.

Once the nation's largest consumer-electronics retailer, Circuit City will begin liquidating its inventory Saturday. Its going-out-of-business sale is expected to last through March.

"We are extremely disappointed by this outcome," said James A. Marcum, the company's acting chief executive officer. "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... in the limited time frame available, and so this is the only possible path for our company."

Circuit City had been negotiating with two buyers. One was Mexican billionaire Ricardo Salinas Pliego, the fourth-richest man in Mexico who controls a chain of electronics stores throughout Latin America. The other was private-equity firm Golden Gate Capital.

Circuit City could not clinch a deal because it could not obtain the necessary financing from its lenders or support from its suppliers, who declined to provide merchandise on credit.

Circuit City's liquidation occurs after the worst holiday retail season in four decades. Consumer spending plunged after financial markets imploded in September, and the economic recession, which began in December 2007, deepened as a result. Retail sales in the U.S. have fallen for six months in a row -- the longest span since such recordkeeping began.

"You can't ignore the economic backdrop," David Schick, a retail analyst at Stifel Nicolaus & Co. in Baltimore, told Bloomberg News. "Had Circuit run into all these problems and had to go to Chapter 11 [bankruptcy] in any other year, they wouldn't have had this outcome."

Circuit City filed for bankruptcy protection Nov. 10 after suppliers refused to ship products without receiving cash up front. The company intended to emerge from bankruptcy as a smaller company, but it will now be following the same liquidation path that has been taken by KB Toys, Mervyn's and Linens 'N Things.

Two other retailers -- Goody's Family Clothing and Gottschalks -- filed for bankruptcy this week. More are expected to follow in the aftermath of the catastrophic holiday sales season. Retailers continue to struggle against a deepening recession, which most analysts expect will worsen through at least the first half of the year.

Besides the weak economy, Circuit City faced intensifying competition from Best Buy and Wal-Mart, which repeatedly cut prices on big-ticket items such as flat-panel TVs to entice increasingly tight-fisted consumers into their stores.

Best Buy, which eventually replaced Circuit City as the nation's top consumer-electronics retail chain, saw its stock rise more than $2 Friday.

Holders of Circuit City's common stock will likely receive nothing after the bankruptcy is completed.

Once it was clear that a sale of Circuit City would not take place, a U.S. bankruptcy judge signed off on the liquidation plan.

"This is a very sad day for management, the employees, customers and the community," the judge said.

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