Saturday, January 17, 2009
Retailer Circuit City to Liquidate
By MIGUEL BUSTILLO Circuit City Stores Inc. begins liquidating its remaining 567 U.S. stores on Saturday, the largest retail casualty yet in a recession that is expected to claim more victims. The electronics and digital-media retailer will be marking down goods by 10% to 30% with higher discounts as the expected April closing approaches. However, retail experts warned that liquidation discounts don't often achieve the level of prior sales prices. The demise of the 60-year-old appliance and electronics chain, the nation's second largest after Best Buy Co., underscores the difficulty retailers have had restructuring under bankruptcy in the current economy. Getty Images About 30,000 people will be out of work as a result of Circuit City's liquidation. "We are extremely disappointed by this outcome," Circuit City's acting chief executive, James A. Marcum, said in a statement. "Regrettably for the more than 30,000 employees of Circuit City and our loyal customers, we were unable to reach an agreement" to sell the company and avoid liquidation, he said. The going-out-of-business sales will start Saturday and will last roughly 90 days, company officials said. Circuit City initially tried to weather the storm by closing 155 stores and laying off hundreds of workers at its Richmond, Va., headquarters. But sales since declaring bankruptcy in November had plunged 43% to 50%. A week ago, it warned it would likely have to liquidate if it did not find a buyer by Friday because its suppliers were increasingly demanding to be paid up front and it was running out of money. On Friday, Circuit City told a bankruptcy judge that an auction to sell itself as a going concern had failed to garner bidders, leaving it no choice but to accept bids from four liquidators: Great American Group WF LLC, Hudson Capital Partners LLC, SB Capital Group LLC, and Tiger Capital Group LLC. Every major U.S. retailer that has sought to reorganize under bankruptcy-court protection in the past year has eventually been forced to liquidate because of a lack of buyers or financing. That has fueled a boom in the business of running liquidations. Stephen Baker, vice-president of industry analysis at NPD Group, said bargains have been scarce amid all the closings. "The people who run these liquidation sales are looking to make money, not give stuff away." Circuit City's demise puts new pressure on commercial property landlords already weighed down by retail closings at Linens 'N Things, Mervyn's LLC, Bombay Co., Sharper Image Corp. and Steve & Barry's LLC. Vacancy rates rose to 8.9% last quarter in the 76 largest U.S. commercial property markets. MORE Sortable Chart: First-Quarter Layoffs"The key issue is can you find a replacement tenant for the [entire store] or do you have to break it up?" said Glenn Rufrano, chief executive of Centro Properties Group, whose retail centers include 23 Circuit City stores. Developers Diversified Realty Corp., which has 50 Circuit City stores among its shopping centers, didn't return calls seeking comment. The company's 765 additional stores and retail outlets in Canada, which are generally smaller and employ about 3,000 workers, are part of a separate bankruptcy process. That business is still being auctioned off as a going concern with bidding scheduled to end next week. People close to the U.S. bankruptcy filing said private-equity firm Golden Gate Capital was interested in buying the entire company late Thursday evening, but was unable to convince creditors to give it even a few extra days to study the retailer's finances. Creditors were unwilling to grant the time because they concluded Circuit City was inevitably finished. "We were in deep negotiations, but those negotiations broke down. There was an inability to get a deal structured in time," Circuit City spokesman Bill Cimino said. Circuit City, which had revenue of $11.7 billion in the fiscal year ended last February, was founded in Richmond in 1949 by Samuel S. Wurtzel as "Wards Company." It grew rapidly in the South, selling appliances and electronic equipment, and by the 1980s was the top consumer electronics chain in America. However, competition from Minnesota upstart Best Buy caught Circuit City flatfooted in the 1990s, and its market share steadily declined. Best Buy is now the nation's largest consumer electronics chain. Circuit City tried a variety of strategies to combat Best Buy, which surpassed it by building up high-profile, warehouse-style stores run with an hourly-wage staff. Circuit City, which stayed too long with showroom-style outlets, did away with commissioned sales staff earlier this decade. In 2007, it fired more than 3,000 of its most seasoned employees in a bid to cut costs. But the move backfired, leaving Circuit City with a reputation for poor customer service that dogged the company, even in bankruptcy. Experts disagreed on whether Circuit City's liquidation sales would harm other retailers. Many expect the company's disappearance to eventually benefit Best Buy and the world's largest retailer, Wal-Mart Stores Inc., an emerging force in consumer electronics retailing. Best Buy's stock rose 8% to $29.34 in 4 p.m. composite trading on the New York Stock Exchange Friday.