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Circuit City Throws In Towel

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By MICHAEL FELBERBAUM and VINNEE TONG

The Associated Press

Published: January 17, 2009

Circuit City on Friday became the largest retailer to fall victim to the expanding financial crisis, announcing it will shut down its remaining 567 U.S. stores at the cost of 34,000 more jobs after failing to sell the business.

The closure of the nation's second-biggest consumer electronics retailer spells more trouble for the nation's malls and is the latest casualty of an unprecedented pullback in consumer spending that has claimed KB Toys, Mervyns LLC and Linens 'n Things.

"Very, very sad," said Alan L. Wurtzel, son of company founder Samuel S. Wurtzel and a former chief executive of Circuit City. "I feel particularly badly for the people who are employed or until recently were employed."

Experts think there will be more retailers to fail.

"This is the only possible path for our company," Circuit City's acting chief executive officer, James A. Marcum, said in a statement. "We are extremely disappointed by this outcome."

The company had been seeking a buyer or a deal to refinance its debt, but the hobbled credit market and consumer worries proved insurmountable. Negotiations for an acquisition went past midnight Thursday, Circuit City lawyer Gregg Galardi said in court.

Two buyers - Mexican billionaire Ricardo Salinas Pliego, who controls a chain of electronics stores in Latin America, and the Golden Gate Capital private equity firm - had been looking to buy the company in a shrunken form, with either 350 stores or as few as 180 stores. However, the company couldn't secure the necessary financing or support from vendors.

Some employees were notified Friday that they would lose their jobs and certain stores would begin close-out sales as early as today. Circuit City has 12 stores in the Tampa Bay area, according to the company's Web site. A company spokesman didn't have an employee count for the Bay area, but Circuit City regulatory filings show that the company has an average of 59 full- and part-time employees at each store. So, the company may have roughly 700 store employees in the area.

Customers at a Circuit City on Tampa's Gunn Highway were modestly disappointed Friday at news of the stores' coming closure. Matthew Hodges, a local contractor, said he visited the store every few months and found that it had more of what he wanted than Best Buy. Circuit City's shutdown will mean less competition in the electronics market, Hodges said.

Some Circuit City vendors will also feel at least a little pain, such as Julio Ramos, who is a market representative for printer and scanner company Epson.

"It's a hit to me, because it's a loss of one sales channel," said Ramos, who also serves Staples, Office Depot and Best Buy. "But it's a wash, because everyone's losing that channel."

Shareholders are likely to receive nothing, as is typical in bankruptcy cases. Circuit City said in court papers it has appointed Great American Group LLC, Hudson Capital Partners LLC, SB Capital Group LLC and Tiger Capital Group LLC as liquidators. They will pay a 70.5 percent return on merchandise.

It was unclear what would happen to the company's 765 retail stores and dealer outlets in Canada.

Credit Suisse analyst Gary Balter told investors that Circuit City's demise will help Best Buy cement its position as the market leader.

"Losing Circuit City and what had previously been an $11 billion business, in addition to share gains from other smaller outlets, should help to partially offset weaker consumer spending as well as further secure Best Buy's position as the leader in the space," he said.

The liquidation of Circuit City follows the worst holiday shopping season in four decades. People have slashed their spending since the financial meltdown in September as they worry about their job security and declining retirement funds.

The move will also hurt the nation's malls, which have suffered from the rise in vacancies as other chains have liquidated. Analysts say that the demise of Circuit City, whose stores range in size from 20,000 to 25,000 square feet, will hurt the fortunes of mall operators even more.

"It will bring to market a glut of big box spaces across the country," said John Bemis, head of Jones Lang LaSalle Inc.'s retail leasing team. "It will have one of the largest impacts on big box real estate across the country."

Tribune reporter Michael Sasso contributed to this report.

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