Tag Archives: bankruptcy

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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CompUSA Goes Belly Up

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As Queen elequently put it, Another One Bites The Dust (watch the youtube video)

… and now, we can report that CompUSA bytes the dust.

Gee Whiz, I must be psychic or something. Just a few days ago, I posted a comment on this blog that CompUSA, a chain of computer stores in the United States, would soon bite the dust.I just stumbled across this article on Reuters and this article on cbsnews that confirms that CompUSA is on it’s way out. According to Reuters, the chain has been sold to the liquidation outfit Gordon Brothers. They will be closing the remaining 103 CompUSA stores in early 2008. No surprise, actually, since CompUSA closed most of it’s stores earlier this year. In recent years, CompUSA was controlled by Mexican businessman Carlos Slim Helu, reportedly the richest person on the planet, even wealthier than Bill Gates or Warren Buffet (see this Fortune article on Carlos Slim).

Have you ever seen a tree that was pruned to death? After a certain amount of pruning, the death of the tree is inevitable, because it can’t absorb enough sunlight to survive. So too with computer retailers (or any business, I suspect). I was quite certain that it was simply a matter of time before CompUSA was history. That time appears to be at hand.

I don’t have an MBA. I’m not an accountant or a retail executive. I’m a computer geek. But I know mismanagement when I see it, and CompUSA was a poster child for piss-poor management. I can’t tell you how many times I went into one of several local CompUSA stores to purchase sale items and came up empty-handed. So, I would walk over to one of the computer terminals that the sales staff used, and I would enter the SKU of the item I was looking for. Nine times out of ten, the computer showed that the store had stock on hand, sometimes a large quantity, but it was nowhere to be found. A few times, when I would pester one of the salespeople to go check the stockroom, they would usually find the item in the back, and bring one out for me. Sometimes, they wouldn’t want to bother because they did not have any confidence in the inventory quantities shown in the computer. Maybe that was just an excuse because they were lazy, or maybe their inventory tracking really was inaccurate. Sometimes they would say it was in the store somewhere, but they didn’t know where.

What a joke. I mean, if you go through the trouble of ordering inventory, printing up a sale circular, and shipping the item to your stores, but you don’t follow through and put the stuff out on your sales floor so it will sell, you don’t belong in business. This wasn’t a rare occurance. It was the status quo at CompUSA. I am confident that if you put me in charge of CompUSA, I could have done a better job. Who knows, maybe I could have saved them. I think part of the problem was that the chain had changed ownership years ago. When any business gets sold, especially if the new owners are investors and/or absentee owners who don’t know the business, look out. With some very rare exceptions, nobody will do as good a job running the business as the person or people that founded it. They don’t have the same passion. If the business fails, they’ll just move on to something else. There’s little devotion or emotional attachment, because it’s not their baby.

The sales people at CompUSA were rarely motivated. I suppose they didn’t earn enough to get real excited about their jobs. The store management was pitiful. There were a couple of employees at the CompUSA I frequented the most who did work hard, and I felt very badly for them losing their jobs when that store closed.

I recently posted this article about rebate scams. I had more than my share of problems with rebates on items I purchased at CompUSA. I complained a number of times, both to the CompUSA store where I purchased the items, and to their customer service phone number. There were many rebates on items I purchased at CompUSA that I got cheated out of, and never received.

You know, to be honest, CompUSA was never my favorite computer store anyway. I preferred the Computer City chain, which closed circa 1998 or 1999, if memory serves me correctly. Computer City was purchased by CompUSA. They closed some Computer City stores and turned the rest into CompUSA stores. Egghead Software was also pretty good, although they operated much smaller stores and did not carry a lot of hardware. Today, Egghead is strictly an online retailer. The newest chain to open in my neck of the woods is Micro Center, which started out in Ohio, and has expanded to almost two dozen stores. Micro Center is a pretty cool store. It looks like there are a lot more good deals to be had there, and they claim that they have prices as good as you’ll find on the web. They sell brand name (Dell, IBM, Compaq, etc.) brown-box “refurbished” computer systems alongside their big selection of new systems. They cater to system builders and gamers and have a pretty large Apple department. They also have a nice computer book and magazine section, nearly as large as you’ll find at Barnes & Noble or Borders Books. On several occasions I’ve picked up some bargain-priced (not-current edition) but otherwise new books for under five bucks each. They even have free Internet access kiosks, so you can comparison shop without leaving the store! There’s little in the way of computer hardware that they don’t carry. If there’s a Micro Center near you, you have little reason left to buy stuff online.

Life goes on. Other computer retailers will come and go, to be sure. Perhaps my opinion of CompUSA will mellow as the memories fade to black.

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