Circuit City Runs Out of Fuses – 1/23/09
Bankrupt Circuit City Stores Inc., unable to find a buyer, said Friday it will go out of business, closing its 567 U.S. stores and laying off its 34,000 workers. About $1.8 billion in retail inventory will be liquidated in sales lasting six to eight weeks.
“This is the only possible path for our company,” Circuit City’s acting CEO James Marcum said in a statement. “We are extremely disappointed by this outcome.”
The electronics retailer, in bankruptcy proceedings since November, had been in talks with two potential buyers, but couldn’t reach an agreement with its creditors and lenders. Some retailer observers saw Circuit City’s quick exit as a sign that that the credit crisis will finally force the retail industry to right-size itself after decades of unbridled expansion.
“We are incredibly over-stored in many sectors,” Stacey Widlitz, an analyst with Pali Research, told The New York Times. “If you don’t have the balance sheet to really weather the storm for a couple of years, then that’s it.”
Discussion questions: How much of Circuit City’s liquidation was caused by internal factors versus external factors? What implications does the exit of Circuit City have for consumer electronics retailing in the U.S.?
Circuit City is the poster child for mismanaged retail. Between an overleveraged balance sheet, the insane decision to lay off their best staff, and lack of a unique selling proposition, this retailer could not have been managed more poorly. It has been painful to watch them decline after an impressive growth record driven by compelling marketing and excellent service. It just goes to show that poor management and a board focused solely on short term leverage-based profits can kill any enterprise.
I do think that both Best Buy and Wal Mart will benefit from Circuit City’s demise as they split their customer base (low end and high end). There will always be room for well-run electronics retailers. This is a category with ever-new product categories and exciting product-driven marketing.
Mike Osorio, your Dare to be Contagious! TM strategist
Go to the full discussion at RetailWire.com:
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