Is Circuit City’s Bankruptcy the Beginning of the End?

By  |  Monday, November 10, 2008 at 9:27 am

circuitcitylogoA week ago, the bad news about Circuit City was that it was closing 115 of its locations. New week, new bad news: The company has filed for Chapter 11 voluntary bankruptcy, a move that will will let it continue business without having to pay all its creditors all the money it owes them.

Bankruptcies aren’t always signs of impending corporate death. But they sure aren’t signs of robust health, either. Companies that file for bankruptices generally then segue towards one of two fates: hobbling along in a bumpy fashion thereafter, or folding.

In the short term, Circuit City’s bankruptcy will help keep it going. As the company noted in its press release today:

Despite aggressive efforts to secure vendor support, vendor concerns about the company’s liquidity and ability to pay for its purchases in this difficult economic climate have escalated considerably since the company provided a liquidity update on November 3, 2008, further impairing the company’s ability to conduct business and provide service to its customers.

That’s press release-ese for the fact that the City was having trouble stalking stocking its shelves with new products. It also says that manufacturers weren’t placated by its announcement of store closures and other cutbacks just a week ago.

The release continues:

Operating under the protection of Chapter 11 will provide the company’s vendors with assurances that they will be paid for merchandise the company receives post-filing so the company can be sufficiently stocked for the holiday selling season.

Or in other words, it’s hoping that manufacturers will think the bankruptcy will help Circuit City lope along and pay its bills, and that those companies will therefore ship it the products it needs in its stores in order to avoid having a disastrous holiday season.

If manufacturers continue to feel anty about providing the City with product on credit, it’ll be a crippling problem that could speed the company’s demise. A crummy Christmas could seal its fate; getting through the holiday season in one piece is, therefore, essential.

Under the protection of Chapter 11, the company plans to build on these recent restructuring initiatives. Through the additional flexibility that the bankruptcy process provides the company to restructure its operations, the company will continue its real estate rationalization by taking immediate steps to reject the leases at its previously closed locations. Further, as part of its restructuring efforts, the company will continue to assess the productivity of all assets, review additional cost-cutting initiatives and explore strategic alternatives to maximize the value of the business.

For which read: We’re busy getting out of our leases,we’re not done slashing our costs, and we’re willing to sell the business if anyone wants to buy it.

The press release ends with an optimistic statement from Circuit City’s CEO:

After considering a wide range of alternatives, it became clear that this course of action was a necessary and responsible step to secure our future. I am confident that, with our tremendous talent pool of the best-trained, most knowledgeable sales and installation teams in the business, we will emerge from this process as a stronger, more competitive organization that is well positioned to respond to and succeed in the ever-changing consumer-electronics industry.

Oops–that statement was actually from the CEO of Tweeter, another electronics chain. He made it last year when it filed for bankruptcy. Last week, Tweeter filed for bankruptcy again and announced it was closing all its stores.

Circuit City’s release includes this statement from its acting CEO:

We recently have taken intensive measures to overcome our deteriorating liquidity position. 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. In the meantime, our stores remain fully operational, and our associates are focused on consistent and successful execution this holiday season and beyond.

Like I’ve said before, I’d like to see Circuit City figure its way out of this mess–not only for the sake of its employees, but also for consumers who benefit from the competition. But it’s far easier to sketch out scenarios in your head in which Circuit City doesn’t ultimately survive than it is to come up with ones which involve it bouncing back.

And here’s one more gloomy data point, in visual form: the performance of Circuit City Stock from 1984 to date:




6 Comments For This Post

  1. Charles Forsythe Says:

    Earlier this year, the Circuit City next to my office announced that it would be moving in the fall, after being where it was for nearly 20 years. The new location would be about 5 miles south in a new mixed use development that featured shopping and high-rise residences (all the rage in new Midwest urban development).

    This seemed like a strange thing to do, since the older buildings neighboring the current Circuit City have been torn down to make way for an even larger development to be finished late next year.

    (YouTube video of the last building going down as of yesterday: )

    If Circuit City were to wait a year, they would be surrounded by “luxury townhomes” and highrise dwellings filled with yuppies needing flat-screen TVs. Now, they just have a sign that says, “Store Closing.”

    I suspect the move plan was tentative and was made to make it easy to just shut down the store rather than move it. Sad.

  2. Relyt Says:

    CC filling for bankruptcy.
    Now there’s a surprise.

  3. adam hartung Says:

    Remember when Circuit City was a favorite in “Good to Great” by Jim Collins? Remember when we thought being big gave you clout with customers and vendors to produce long-term returns (Michael Porter’s 5 Forces Model)? It’s time we recognize that the old approach to management doesn’t work in a rapidly shifting competitive world. There are winners in today’s market, but they follow a different approach. Read more at

  4. cmason Says:

    “the City was having trouble stalking its shelves with new products”

    Stalking sort of works there, in a Elmer-Fudd-hunting-the-Wabbit kinda way, since I imagine Circuit City will need to hunt far and wide to find vendors willing to risk providing stock to them on standard terms.

    (perhaps you meant stocking?)

  5. Matthew Says:

    There are layoffs but I still see thousands of high paying jobs. (professional networking) (aggregated listings) (matches jobs based on your skills)

    Good look to the circuit city folks!

  6. pond Says:

    “the City was having trouble stalking its shelves with new products.”

    Dictated to Dragon NaturallySpeaking?

    we have a word for clumsy typing mistakes (typo) and one for OCR mistakes (scanno) … is there a word for speech-recognition mistakes?

    (a couple other funnies, like vendors getting ‘anty’ about City’s ability to pay.)

    don’t change them, they really do brighten an otherwise gloomy, depressing story.

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