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Tuesday, 11 November 2008 03:58

Chapter 11 comes for Circuit City

Written by David Stellmack

Image

155 stores closed.. not enough to stop the filing

The news for Circuit City appears to continue to move from bad to worse. While the company launched an aggressive effort to prevent its filing Chapter 11 bankruptcy, the pressure just was too much and the company had to protect itself from creditors in order to attempt to right the ship.

While the current state of the economy can be blamed for some of the trouble that Circuit City has had, the trouble seems to have started long before this point. The company has over $2.32 billion in debt, according to reports dated August 31st.

The biggest factor that is hurting the company at the moment is its inability to get inventory on credit. With more than 100,000 creditors who are owed money and the company headed into the holiday season the mix isn’t good for Circuit City at all. Of course, the company needs inventory on the shelves to sell this holiday season and the limited availability of credit coupled with the fact that some companies have placed Circuit City on upfront only payment before shipment is putting a further squeeze on the company.

As for the liquidation at the 155 stores that the company is closing, prices are at least 30% off the marked price with the discount percentage continuing to drop as the inventory starts to move. The company that could be hurt most by this fire sale is none other than Best Buy, with stores that are in areas close to the Circuit City units that are closing. It is expected that they will feel the sting at these stores while shoppers spend at the closing Circuit City stores in an effort to get a deal.

The Monday morning quarterbacks are already starting to crow about the fact that Circuit City did not move fast enough to curb the current situation, and the company should have taken the situation more seriously and moved to close stores and reduce its workforce sooner than it did.

Last modified on Tuesday, 11 November 2008 07:18

David Stellmack

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