Circuit City, America’s No. 2 electronics seller after Best Buy, filed for bankruptcy protection Monday.
The news comes on the heels of Circuit City’s announcement last week that it would close 155 stores as it reels from the economic turmoil that has come to define 2008. As consumer confidence waivers and unemployment skyrockets, consumers are left with less money to shop.
Circuit City said that it decided to file for Chapter 11 bankruptcy now so that it would “have adequate merchandise flow to stores during the important holiday season.”
"Chapter 11 is not a closing or liquidation," the company said in an e-mail to CNNMoney.com. "We remain committed to doing a better job of taking care of our guests, and making it easier to shop at Circuit City."
Conversely, Circuit City’s negligence in taking care of its guests may have been the catalyst in the electronic giant’s demise in the first place, according to retail analyst and president of Customer Growth Partners Craig Johnson. Last year the company decided to fire more than 3,000 of its highest-paid sales staff and replace them with lower-paid workers.
“This was a huge strategic blunder," Johnson said. "People want a knowledgeable sales person when they are spending $2,000 on a TV. They don't want to buy it from some kid at Wal-Mart."
The layoffs of Circuit City’s employees highlight a dangerous and burgeoning trend in America. Americans in all sectors of the work force are losing their jobs at alarming rates. As companies try to cut costs, American jobs are either outsourced overseas or given to less capable or skilled workers. We are not creating jobs for these displaced workers and unemployment is skyrocketing.
Circuit City believes they have taken “intensive measures” to overcome their deteriorating liquidity position by negotiating a commitment for a $1.1 billion credit line to supplement its working capital. The company said the credit line will replace the Circuit City’s $1.3 billion asset-based line provided by its lenders.
However, insiders remain skeptical that holiday shoppers will pursue the remaining 566 operating stores in the U.S. as warranties, returns, exchanges and gift card policies at Circuit City are still in limbo. Circuit City is currently seeking approval from the bankruptcy court to honor such customer programs. As all retailers prepare for a dismal holiday season, it remains to be seen whether this American Icon will be another causality of America’s depleting economy.
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The company's bankruptcy filing was also made at a crucial time of the year for merchants who are preparing for the year-end holiday shopping season.
The November-December period can account for 50% or more of retailers' annual profits and sales. But this year, many Americans have clamped down on their shopping habits amid a weak economy and a shaky job and credit market. Industry analysts warn that retailers will have to do whatever they can this year if they hope to have at least decent holiday sales. |