Category Archives: Stock Markets

Circuit City Finally Bites The Dust

The news shouldn’t surprise anybody, certainly not readers of this blog.

Richmond, Virginia based Circuit City stores announced today their intention to close their 567 remaining stores and liquidate their inventory.  We predicted that they wouldn’t last much past the end of the 2008 Christmas season.

That means another 34,000 American workers joining the unemployment line.

See our previous posts…

Circuit City Stores Files For Chapter 11 Bankruptcy Protection

One Foot In The Grave At Circuit City

Philip Schoonover Learns That What Goes Around Comes Around

– Routing By Rumor

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Using Website Visitor Statistics As An Early Warning System

Like the canary in the coal mine, warning of the presence of deadly gases, or the seismograph warning of an impending tsunami, website (or blog) visitor statistics provide a valuable early warning system of current events, breaking news stories, and things that will be making news in the days ahead.

Google has known this for quite a while. Google’s Zeitgeist provides statistics that show the latest search trends. You can even go back and see what searches were hot on a previous date.

Like many bloggers and Webmasters, we keep tabs on Routing By Rumor’s traffic statistics. In the past 24 hours, we’ve seen a spike in visits that are related to several of the articles we’ve written in the past. An unusually high number of visitors have landed at our doorstep after doing searches for “Walmart” (or “Wal-Mart” or “Wal Mart”), “Ashley Alexandra Dupre” and “Blackrock layoffs”. We welcome the “business”, but we’re always curious as to why people end up here.

Searches for “Walmart” have always been a top search engine source of traffic to our blog. We’re guessing that a few items related to Walmart that have been in the news in the past few days have a lot to do with the sudden spike in traffic related to Walmart. Perhaps the news coverage of Walmart’s (and other retailers) day-after-Thanksgiving “Black Friday” sales have a lot to do with the increase in search engine traffic.

Ashley Alexandra Dupre is the alleged prostitute allegedly associated with the (alleged former New York Governor) Eliot Spitzer scandal, who received some coverage in this alleged blog a few months back. But why is she suddenly a top search engine topic once again? A bit of research gave us the answer. It seems that Ms. “Dupre” will be interviewed by Diane Sawyer, in a piece that will air on ABC’s 20/20 broadcast this Friday. Who ever said that crime doesn’t pay ?

We were scratching our head on the “Blackrock layoffs” searches that were bringing visitors to our blog. We wrote a piece last winter about layoffs at WCBS-AM, which we titled “Bad Day At Black Rock”. Black Rock is the nickname for CBS’s New York City headquarters building, owing to the dark granite facade of the skyscraper. But we had not heard of any new layoffs at CBS, so why the sudden interest in layoffs at “Black Rock” ?

A bit of digging yielded the answer. There are rumors floating that a round of layoffs are about to be announced at investment company Blackrock, Inc., the largest publicly traded asset management firm in the United States. Nothing to do with CBS, but close enough that it created a spike in visitors to my blog !

So, Webmasters and SEO (Search Engine Optimization) experts take note. If you see unexpected increases in traffic to your site that you can’t explain, dig deeper to find the source. Search engines rarely lie. It may be a case of mistaken identity, as with our “Black Rock” visitors. Then again, it may be an early warning of something you should know about, possibly relating to your website, your company, or a competitor.

We wonder whether mainstream media has caught on to this as a news gathering tool. It is no secret that journalists often “find” stories because they have already been covered by another newspaper, TV or radio station. Search engine statistics should be able to scoop other sources of news. The statistics are real-time, not requiring the printing of a newspaper, or the taping and editing of a television or radio news report. We would like to think that if the Internet existed back in the days of The Daily Planet, that cub reporter Jimmy Olsen would be using his computer and Google to scoop the other reporters.

We were wondering if we would get credit for coining the term “zeitgeist journalism“, so we decided to Google the phrase. Edward Rothstein, for one, used the term in this New York Times article about trend-spotting a dozen years ago, although obviously not in reference to Google, so we probably can’t claim ownership. Maybe we’ll just call it “Google journalism“.

Great Caesar’s ghost !

– Routing By Rumor

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Circuit City Stores Files For Chapter 11 Bankruptcy Protection

This morning, Circuit City filed a bankruptcy petition (see bloomberg.com article), In Re Circuit City Stores Inc., 08-35653, with the U.S. Bankruptcy Court for the Eastern District of Virginia. If you’ve been following this blog, you won’t be surprised by today’s filing. Circuit City has had one foot in the grave for a while now (see our article from last week). See additional coverage of this story by Forbes, The Associated Press, The New York Times, Barron’s and Reuters.

The Richmond Times-Dispatch reported that last Friday, up to 800 employees at Circuit City’s corporate headquarters (more than a third of the workers there) received pink slips.

Circuit City owes well over half a billion dollars to suppliers including Hewlett-Packard, Samsung, Sony, Zenith, Toshiba, Garmin and Nikon. With bankruptcy looming, more and more vendors have refused to extend credit to Circuit City. With today’s filing, we’re pretty sure their ability to obtain terms from vendors is now pretty much non-existent. It probably also ensures that the New York Stock Exchange will de-list Circuit City, as they have already warned, if their share price doesn’t make a sustained recovery to above $1.00 a share. In early trading today, Circuit City shares have lost more than 90% of their value, falling from a lofty $0.12 per share when the market opened, and now sitting at an embarrassing two pennies a share (but that’s at least twice as much as we think its worth, so you could say its overvalued).

11/11/2008 Update…

Well, that didn’t take long. The latest milestone on the devolution of Circuit City has occured. Circuit City shares have been delisted from the New York Stock Exchange (NYSE), and are now trading on the Pink Sheets.  With all these pink slips and pink sheets, maybe pink is Circuit City’s new color.  Circuit City is now what is referred to as a “penny stock”. That light you see at the end of the tunnel just may be the oncoming Best Buy Express. Click here to get a quote on Circuit City shares (CCTYQ.PK)

Things have gone steadily downhill for Circuit City since they made the absolutely brilliant business decision in March of last year, to fire 3,400 of their most experienced employees. Consumerist.com has posted
this excellent timeline of Circuit City’s decline, titled “How Circuit City Came Undone”, which shows their declining stock price in relation to various events in their demise. The graph looks a lot like a ski slope. It’s the sort of thing they’ll probably use in business schools, when teaching a course in how to destroy a successful company.

Perhaps the saddest part of this modern day Greek tragedy is the fact that the executives who were the architects of this debacle earned millions of dollars for their role in the company’s failure. Perhaps the new scrutiny that the country’s economic meltdown is focusing on executive compensation will cause the directors of corporations to hold their executives responsible for the bad decisions they make. Here’s a suggestion… Instead of simply lavishing millions of dollars in company stock on executives, how about adding the condition that they won’t be vested unless there is a certain number of quarters of future growth. For instance, Mr. CEO, that five or ten million dollars worth of company stock won’t be yours unless the company makes money over the next two years. No more “take the money and run”. For too many corporate executives, it has been a game of “heads I win, tails I win”.

Given Circuit City’s history and reputation, the decrepit state of the U.S. economy, and the competition that exists in the consumer electronics space (especially from competitors Best Buy and Walmart), we think it’s a safe bet that Circuit City will never emerge from bankruptcy, and that’s, as Martha Stewart would say, “a good thing”. Last week, they announced the closing of many of their stores, and we wouldn’t bee surprised if more closings follow before the end of the year.

Coming at the beginning of the holiday shopping season, the closings and the bankruptcy filing might attract some bargain hunters, but let’s be honest… Who wants to make a major purchase from a retailer who may very well not be around, should you need to return an unwanted or defective purchase. It pretty much goes without saying that anything purchased at a going-out-of-business sale is sold as-is, no returns, no refunds. Caveat emptor.

We’re going to go out on a limb here, and make the following prediction; Circuit City’s Chapter 11 bankruptcy will become a Chapter 7 filing (liquidation) within six months, perhaps much sooner. Check back here to see how our prediction fares.

– Routing By Rumor

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One Foot In The Grave At Circuit City

With just three weeks to go before most of the nation’s retailers enter their busiest time of the year, Circuit City stores have announced their latest brilliant plan. They are closing 155 of their locations, spread across 28 states (Reuters and Associated Press, 11/03/2008). The going-out-of-business sales at these locations will reportedly start tomorrow, November 5th. This is the latest bit of bad news from the nation’s #2 electronics retailer, which has had mass layoffs, sales declines, and received a lot of negative publicity in the last few years (see our previous articles about Circuit City’s problems, here, here, here and here).  With the closing of these Circuit City locations, thousands more Circuit City employees will join the ranks of the unemployed.

This should be viewed as an emergency amputation, as opposed to a pruning. When you have a healthy core, but too much growth in the branches, you prune, to keep the rest healthy. When there is systemic disease that causes necrosis at the periphery, you amputate. Other large retailers that have been proactive in difficult times tend to close just a handful of their worst performing locations, and they’ll do it after their peak selling season. Retailers that make ill-timed cuts, and who do it with an ax instead of a scalpel, tend to suffer from poor management or a lack of management. They usually don’t act until it’s too late. We believe the current debridement occuring at Circuit City falls into this category.

The fact that Circuit City could not wait until after the holiday selling season to close these stores speaks volumes about just how bad things are at the Richmond, Virginia-based electronics retailer. Indeed, with a stock price that has traded as low as 17 cents a share in recent days, and notification last week from the New York Stock Exchange that their stock is subject to de-listing, things can’t get much worse. Some of their suppliers, fearing that Circuit City is on the verge of bankruptcy, are refusing to ship merchandise to Circuit City unless they are paid cash up front. Consumers, hard hit by the recession, and disgusted with Circuit City, are spending any money they may have, elsewhere. Even with the announced closings, some analysts are predicting that Circuit City will be forced to liquidate or file for bankruptcy by January.

As bleak as things are at Circuit City, you still hear people saying that they are exploring “strategic alternatives” (see Business Week, 11/03/2008). We will submit to you that when you’re on the verge of bankruptcy, sales have dried up, vendors are demanding cash, your stock price is measured in pennies rather than dollars, you’re forced to close hundreds of stores, and the nation is in the grip of a deepening recession, you don’t have any “strategic” alternatives. The choices seem to be declaring bankruptcy now, or trying to hang on a little longer and declaring bankruptcy a few months from now. If Circuit City is pinning their hopes for survival on having a banner Christmas season, they’re in for a terrible shock. Even relatively healthy retailers are bracing for a dismal end to a dismal year, and the U.S. economy doesn’t seem poised to roar back to life anytime soon.

Circuit City’s woes spell opportunity for it’s competitors. It appears that the nation’s largest electronics retailer, Best Buy, will likely snap up some of the locations being vacated by rival Circuit City.

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Hanesbrands Ships Even More American Jobs To China !

..And some people wonder why the American economy is on life support.

Hanesbrands, Inc., the North Carolina based clothing manufacturer best known for their Hanes, Champion and Playtex brands, has given up on more American workers. Two weeks ago, they announced the elimination of more than 8,000 jobs, or 12% of their payroll, and the closing of nine plants in five countries. The job cuts will include 1,300 workers in North Carolina alone. If you’re looking for work in China, you’re in luck. But if you’re looking for work in North Carolina, tough luck. Hanesbrands expects to hire 2,000 employees in China by the end of the year. They’re also building a new textile fabric plant in Nanjing, China.

What wonderful news for the American economy !

Hanesbrands is giving up on workers in Central America as well, including Costa Rica, El Salvador and Honduras. Apparently, not even low paid workers in these countries can compete against China. While it looks like most of these jobs are going to China, the company also said they will be moving production to plants in Vietnam and Thailand. It’s probably just a coincidence that these may be some of the worst countries on earth, in terms of worker exploitation (see “Secrets, Lies and Sweatshops“, Businessweek, 11/27/2006).

Al Norman over at The Huffington Post has written an excellent piece about Hanesbrands’ abandonment of American workers. He puts the blame squarely on retailers like Walmart, and the consumers that flock there looking for cheap goods. In fact, he calls Walmart “the travel agent for Hanesbrands”.  Also check out our article from last December, “The Walmartization Of America“.

Take a look at Hanesbrands’ CEO Richard A. Noll’s total annual compensation at Forbes.com. We would have less of a problem with the top management at a company receiving obscene levels of compensation if they were able to provide employees with secure jobs, and pay them decent wages. We’ve read opinions that most all CEOs at U.S. corporations are good, decent, intelligent people, and we trust that Mr. Noll fits that profile. But when large numbers of your employees are getting pink slips, and you are closing many of your factories, it seems to us that the pain should be shared by the most highly compensated employees at the company. If top management doesn’t see fit to spread around the pain, then the company’s directors should address the issue. Come to think of it, if Hanesbrands’ manufacturing is moving to low-cost places like China and Vietnam, perhaps their CEO position should move there also, to be closer to their workers. You could probably find a very capable CEO in Ho Chi Minh City, who would take the job for about 50 cents a day.

Do you think it’s possible for someone like Mr. Noll to comprehend the impact of the plant closings on an employee who has spent their entire career in a North Carolina textile factory, and is now told that their job is being sent to China? If you do the math, it would seem that if Mr. Noll and other executives at Hanesbrands took a modest cut in their annual compensation, Hanesbrands could afford to keep at least one of their North Carolina plants open, and many of their loyal employees on the payroll. It would sure be interesting to hear some of their soon-to-be-jobless employees’ opinions on the subject. Obviously, making tons of money is nice, but at some point, doesn’t the voice of reason (or perhaps conscience) tell you what the morally right thing to do might be ? Dining on Prime Rib is nice, but we would have trouble swallowing if we were surrounded by people who were starving to death. It’s also all about loyalty, which seems to be in terribly short supply in the American workplace, in the executive suite, as well as on the factory floor.

We believe, and we’ve written previously, that the loss of jobs and manufacturing capacity in the United States is at the root of our current economic woes. The withering stock market, the banking and real estate crisis, the credit crunch, the decrepit state of the U.S. auto industry and the weak U.S. dollar are all symptoms of an economy decimated by companies who have abandoned the American worker, in search of profits in places like China.

You know, those cheap Hanes socks, underwear or other garments at your local department store may not be the bargains they appear to be. Actually, you might not be able to afford the type of bargain that Hanes is offering !

Let’s say that you’ve had it with companies that have moved their manufacturing to China. This mom did, and she decided to boycott all Chinese-made goods for one year. She is a reporter, and wrote about her quest, in “A Year Without China: One Mom’s Fruitless Quest To Boycott China”. Her experience is quite interesting, and includes a futile attempt to avoid Hanes products made in China.

Last week, we were reading the New York Times, when an ad practically jumped off the page at us. With the title “Even The Rope We’re Hanging Ourselves With Is Made In China”, it echoes our feelings about what is wrong with the U.S. economy. A play on Lenin’s quote “The capitalists will sell us the rope with which we will hang them”, to be sure, but also very true with regard to the state of the U.S. economy.

The “rope” ad is from an organization we had never heard of, called The Institute For America’s Future. We urge you to visit their website at www.ourfuture.org. They are warning America about exactly the same things we’ve been writing about; the trade deficit, the exporting of American jobs, the loss of manufacturing capacity, and the dependence on foreign oil.

Doctor Bush and his band of merry economists can throw 700 billion band-aids at the problem, but that will have little effect. The patient is hemmorhaging, and unless the source of the bleeding is addressed, all the band-aids in China (or all the tea in China) won’t save the patient. President Bush has recently resorted to his emergency “fireside chats” with the American public, making his morning televised appearances to try and reassure the nation in the face of the economic meltdown. We think we can safely say these little pep talks have done nothing to calm Wall Street, or reassure the man on the street. They are too little, too late, from an American President who really doesn’t seem to get it.

And look at the $85 billion bailout of AIG, a company in such bad financial shape that they could afford to squander close to a half-million bucks on an “executive retreat” at a California resort, just days after lawmakers signed off on their bailout. But then, when your rich uncle is writing you a check for $85 billion, that hotel tab probably looks like pocket change. Talk about laughing all the way to the bank. It’s like giving a few bucks to a homeless person begging on the street, who then uses your money to hire a limo to take them to the welfare office. If AIG’s behavior isn’t criminal, it certainly should be.

And of course, when Robert Willumstad, the Chief Executive at AIG (he lost his job a day after the federal bailout was announced) is hauled before lawmakers on Capitol Hill, and asked to justify the squandering of money on a “retreat” at a California resort, which included $23,000 spent on spa treatments for AIG employees, he understandably pleads ignorance, telling the House Oversight and Government Reform Committee that he was “not familiar with the conference”.

In the last week or so, we’ve witnessed what historians will refer to as “The Stock Market Crash Of 2008”. The crash, proceeded by the economic epidemics of layoffs, home foreclosures and bank failures would seem to indicate to reasonable people that the U.S. economy, at the very least, is in a recession. In response to the crumbling economy, the U.S. government has taken unprecedented action to shore up banks, insurance companies and investments such as money market mutual funds. Yet, the Bush administration cannot bring themselves to using the “R” word. The Bush administration is in denial.

Good luck to the presidential candidate who will inherit this mess 100 days from now. Whichever candidate that happens to be, we think their first order of business, their top priority, must be to bring American jobs back to America, and to address the trade deficit and our dependence on foreign energy.

– Routing By Rumor

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Quote Of The Day: Ben Bernanke

Henry Paulson, Ben Bernanke, and Christopher Cox testifying before the Senate Banking Committee on Tuesday (photo: Dennis Cook/AP on msn.com)

And no, despite any resemblance, that is NOT a photo of the Three Stooges. A definite case can be made, however, that Mr. Bernanke is surrounded by “speak no evil” and “see no evil”.

Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson, SEC Chairman Christopher Cox and Federal Housing Finance Agency Director James Lockhart testified today before the Senate Banking Committee, about the Bush administration’s $700 billion financial industry bailout plan (see Associated Press article).

As incredible as this sounds, Mr. Bernanke told lawmakers that “you risk a recession with higher unemployment and increased home foreclosures unless you act“.

Risk a recession ?

Could someone tell us what they’re smoking down there in Washington?

What planet is Mr. Bernanke living on ?

If we’re not in a recession, then perhaps the U.S. economy will simply skip the recessionary phase, and just sublime directly into a depression (we’re awfully damn close). We suppose that would be more energy efficient.

We’re kind of surprised that Mr. Bernanke could be so out of touch with average Americans that he doesn’t realize what horrific shape the economy is in. He has spent most of his career in academia, so the isolation of the ivory tower could have something to do with it. And while he has a net worth in excess of $1 million, he earns less than $200,000 a year as Fed Chairman. With the cost of living in the DC area, that’s probably not enough to live a real lavish lifestyle. So, you would think that even if he isn’t your average working stiff, and he probably hasn’t lost his home to foreclosure or gotten a pink slip lately, he would appreciate just how much the average American family is hurting because of the R-E-C-E-S-S-I-O-N.

Does Mr. Bernanke really believe that a recession is still only a threat at this juncture? It makes us wonder if there might be something in the water in Washington that could be affecting the judgment of our nation’s leaders. On the other hand, he might be under considerable pressure to sing the company song, even if he disagrees with the lyrics. It does beg the question; just how bad must things get before the Bush administration acknowledges we’re in a recession. Would they ever admit it under any circumstances ?

If we’re not in at least a recession (or worse), why is the economy on life support, and why are all of these banks, investment houses and insurance companies going belly up ? And why are the markets so unstable, with one-day 400-point drops on the Dow becoming commonplace, and oil shooting up $20 in a day. And why are so many companies laying off thousands of employees each ?

If this ain’t a recession, what is it ?

A correction ?

A mild downturn ?

A slight dip ?

Turbulence ?

A pre-recession, kind of bumpy ride, but not quite a recession sort of thingy ?

A __________________. (fill in the blank with your own description)

As far as Mr. Bernanke’s warning of “higher unemployment and increased home foreclosures”, you mean it could actually get even worse than it is now ? Really ?

Something to look forward to, huh ?

– Routing By Rumor

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Philip Schoonover Learns That What Goes Around, Comes Around.

Philip Schoonover, former Circuit City CEO (photo on circuitcity.com)

Philip Schoonover, former Circuit City CEO (photo on circuitcity.com)

We’ve raked the management of Circuit City Stores over the coals in the past, because of the way they have treated their employees, and for what seems to us, to be some of the worst business decisions in the history of the World.

Circuit City Stores announced on Monday that board member James Marcum has replaced Philip Schoonover as CEO (see “Circuit City CEO Gets Unplugged“, Businessweek, September 22). They did not say whether Mr. Schoonover plans on reapplying for his former job in ten weeks, at a market-based salary.

As they say, “what goes around, comes around”.

It would be no surprise if the Board finally staged a mutiny (although published reports indicate that Mr. Schoonover tendered his resignation). The scooner Schoonover has been on the rocks since Circuit City announced in March, 2007 that they were firing 3400 employees immediately, because they earned too much. Those employees were told that they could reapply for their former jobs in ten weeks, at a market-based (meaning lower) salary, but there was no guarantee a job would be available for them. We do not know if any of those employees were stupid enough to reapply for employment at Circuit City, or if any that might have done so were eventually rehired. We’re sure those 3400 former Circuit City employees feel just awful for Mr. Schoonover.

Now, in addition to the strong headwinds that Circuit City is encountering because of the U.S. economic slump, and stiff competition from retailers such as Best Buy, they also have the benefit of consumer backlash towards a company that would treat their employees as poorly as they have. And it’s not just the mass layoff that we’ve just mentioned. Look at Circuit City’s wikipedia page, and read about some of the court cases they’ve been involved in, particularly regarding their employment practices.

It’s truly amazing that their ship, while listing heavily, is still afloat.

Circuit City has searched the seven seas looking for a suitor, but has been unsuccessful. Would YOU buy a company with as much bad karma or as much red ink as Circuit City ? But hey, there’s so much bailout money coming out of Washington these days, maybe they’ll tack a Circuit City rescue plan onto the $70 billion financial system bailout plan they’re debating right now.

To say that Mr. Marcum has his work cut out for him is an understatement. But then, perhaps his plan, assuming he has one, is not to rebuild the company. Mr. Marcum was elected to the Board in June, having been nominated by Circuit City shareholder Mark Wattles. Wattles has indicated in the past that he wants to find a buyer for Circuit City. It would certainly make sense to think that Mr. Marcum’s role will be that of caretaker, while they continue to look for a buyer.

We’ve mentioned previously that the best thing Circuit City could do to stem their losses is to liquidate the company. With dire predictions for this Christmas season for the nation’s retailers, as well as a bleak outlook for the economy in general, it doesn’t seem to make a whole lot of sense for a company in the sad shape that Circuit City finds itself to drag things out any longer.

– Routing By Rumor

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