Circuit City to pull plug on 155 stores - Printable Version

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Circuit City to pull plug on 155 stores - who - 11-04-2008

Circuit City to pull plug on 155 stores

By Jonathan Birchall in New York


Circuit City, the troubled consumer electronics chain, provided more evidence of the downturn in US retailing yesterday when it unveiled plans to cut more than 7,000 jobs and begin liquidation sales at a fifth of its stores as it tries to stay afloat.

The retailer was facing problems before the financial crisis worsened in late September. But it said the subsequent steep fall in consumer confidence and tightening credit market conditions had made it increasingly difficult to secure credit from some of its suppliers.

James Marcum, who took over as chief executive in September, said that its problems had been aggravated by "unprecedented events . . . in the financial and consumer markets causing macroeconomic trends to worsen sharply".

He added: "We are making a number of difficult but necessary decisions to address the company's financial situation as quickly as possible."

The retailer is to start liquidation sales at 155 stores tomorrow, and said these would be shut by the end of the year, cutting its workforce by about 17 per cent.

Circuit City and rival Best Buy both expanded rapidly into national chains over the past two decades, with their big-box store formats pushing many smaller independent and regional electronics retailers out of business.

But Circuit City has struggled for more than a year against both Best Buy and competition from Wal-Mart and Target, the discounters, which have expanded their electronics offerings.

It said yesterday that some suppliers had declined to extend additional credit to the retailer to meet seasonal demand following poor quarterly results announced in September. It also said conditions in the credit markets had made it impossible for vendors to secure credit insurance for shipments, and that some suppliers had started requiring payment in advance.

The company said it was still reviewing its options, including further cost reduction measures, and that it was seeking alternative financing arrangements.

Colin McGranahan, analyst at Sanford Bernstein, wrote in a note to clients that "at this point, we believe that a bankruptcy filing for Circuit City is largely unavoidable".

Circuit City's problems come as Linens N Things, a national home furnishings chain, and Mervyns, a regional discount store, are conducting liquidation sales that will lead to their stores closing at the end of the year.

Other leading chain retailers will report comparable store sales for October on Thursday, with clothing and department stores, in particular, expected to be down.

Leading retailers are also already launching aggressive holiday price cutting. Kmart, the discounter, and Toys R Us have already launched "door buster" limited-time bargains that are traditionally a feature of the post-Thanksgiving weekend.

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