Sunday, November 02, 2008

Rumor Update: Circuit City Closing 155 Stores

Last month we reported on the rumor that Circuit City might be closing 150 stores, it appears as though those rumors may indeed be true. The Consumerist, citing " anonymous insider tips", reported today that Circuit City indeed plans to close 155 of its 711 stores nationwide.

According to their sources, employees of the affected stores were told this morning about the closings, which will be officially announced tomorrow at 8am. The store closings will be effective 12/31/2008 and according to at least one of the reported tips, Firedog and car installation employees will likely be fired within 48 hours.

As for what will happen to the closing stores, The Consumerist provided this commentary from an insider:

A team of liquidators will be coming in and taking control of the store. They will set prices as they see fit, and price match guarantee, employee discounts, CC circulars, and the new one price guarantee are all out the window. The price you see is the price you will pay, although it ought to be at a bit of a discount. Firedog services as well as car audio installation are gone immediately. Returns and warranties have to be taken to a CC that's not closing. No new stock will be delivered, we just gotta crank away and sell off everything, and when it's sold, we hit the road.

For more information as well as a scanned copy of a letter CC'd to The Consumerist by a tipster head over to The Consumerist.

To compound the issue, Gizmodo has reported that Sony merchandise headed for delivery to Circuit City stores has been halted in mid transport.

Circuit City took a major blow today, according to a reliable inside source, when Sony's merchandise that was being delivered to nationwide Circuit City distribution centers was stopped in transit and ordered to return to Sony "among worries that Circuit City couldn't pay for the shipments." This development means that Circuit City is not getting any Sony products replenished until they are able to convince Sony that their credit line is reliable. And with as bad as things are looking for Circuit City at the moment, that day may never come.


It has now been confirmed by Circuit City that they are indeed closing several stores and liquidating those assets. In a press release released today the company sites many factors that have contributed to the company's liquidity position. These factors include the following:

-- Waning consumer confidence and a significantly weakened retail environment have impacted negatively the company's sales and gross profit margin rate to a greater degree than management had anticipated previously.

-- Following the company's second quarter results announcement, the company's liquidity position and the sharply worsened overall economic environment led some of Circuit City's vendors to take restrictive actions with respect to payment terms and the credit they make available to the company. Additionally, the recent disruption in the financial markets has contributed to certain of the company's vendors experiencing insurmountable challenges with obtaining credit insurance for the company's purchases. As a result of this and other considerations, certain of the company's vendors have set more restrictive payment terms than in previous quarters, including in some cases requiring payment before shipment. Vendors also have limited the credit available to the company for purchases, including in some cases not providing customary increases in credit lines for holiday purchases. While management is working diligently to secure the support of its vendors and believes it has maintained good relationships with these important partners, the current mix of terms and credit availability is becoming unmanageable for the company.

-- To date, the company has been unable to collect an income tax refund of approximately $80 million that the company believes it is owed from the federal government.

-- Due primarily to the weakened economic environment and its potential impact on the timing of sales of the company's inventory and costs and expenses associated with such sales, a recent third-party appraisal conducted for the company's asset-based credit facility resulted in a reduction of the estimated net orderly liquidation value of the company's inventory. This valuation adjustment was made despite the mix of merchandise remaining consistent with the previous appraisal in November 2007. This reduction has led to a lower borrowing base and reduced availability for the current period compared with what the company had expected previously.

James A. Marcum, vice chairman and acting president and chief executive officer of Circuit City Stores, Inc. said, "Since late September, unprecedented events have occurred in the financial and consumer markets causing macroeconomic trends to worsen sharply. The weakened environment has resulted in a slowdown of consumer spending, further impacting our business as well as the business of our vendors. The combination of these trends has strained severely our working capital and liquidity, and so we are making a number of difficult, but necessary, decisions to address the company's financial situation as quickly as possible."

Here is a list of stores that are closing: CC Closure List PDF

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