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Tuesday, 21 October 2008 06:27

Circuit City looks to be in trouble

Written by David Stellmack

Image

Looking at 150 store closings and job cuts


In the current business climate things are tough all over, as we saw massive cuts and closings by CompUSA and a total closing of PC Club earlier this year. Now it looks like troubled Circuit City is taking a look at its options, as its struggle to survive has become too much and they have decided that something has to be done.

The company has been trying to compete with arch rival, Best Buy, for a long time, unsuccessfully for the most part. Even with a narrower field, the company has had a tough time even competing with smaller retailers like Frys and Radio Shack.

Our sources are telling us that they are looking at a rescue plan to slash the red ink by closing as many as 150 stores and laying off scores of employees in an effort to avoid a possible Chapter 11 bankruptcy. The move could put Circuit City in the position to dump as much as $350 million in assets.

The situation at Circuit City seems to be so grave that they have already brought in Chapter 11 specialists, Skadden, Arps, Slate, Meagher & Flom, LLP and FTI Consulting, Inc. FTI has been tasked with designing a plan to dig the company out and put it back on track quickly. According to reports, however, a total liquidation of Circuit City is still on the table as an option, as well.

No matter which direction Circuit City is headed, if they were to close up shop this would pretty much hand over an exclusive monopoly to Best Buy in every market that does not have a Frys. While Frys has continued to expand, their expansion has been very slow and deliberate, making sure that they have the ability to turn a profit in the market space they are entering.

Circuit City has not been a favorite with many consumers who complain about high prices and limited choices. If Circuit City does push ahead through the holiday season, we expect the company to get more aggressive and try to remake their image to move to a more discounter-oriented model. Still, it is hard to ignore the slumping sales and the need for increased traffic this holiday season to be pivotal in any possible turnaround for the company.

While no decision is yet final, we expect that the company will try to survive and make it through the holiday season before taking final action on which direction it will go long-term. We do suspect that FTI will introduce a very aggressive plan to help keep the company afloat, but we suspect that it will be too little, too late. We will keep you posted as more information becomes available.

Last modified on Tuesday, 21 October 2008 09:21

David Stellmack

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