Circuit City Stores Inc. filed for bankruptcy amid rising competition from Best Buy Co., Wal-Mart Stores Inc. and online electronics retailers.
The petition for Chapter 11 protection in U.S. Bankruptcy Court in Richmond, Virginia, listed $3.4 billion in assets and $2.32 billion in liabilities, driving the shares down 56 percent before the New York Stock Exchange halted trading. The company said it is entering court protection owing Hewlett-Packard Co. $119 million and Samsung Electronics Co. $116 million.
The Richmond-based company, founded in 1949 when Samuel Wurtzel opened the city's first retail television store, has lost more than $5 billion in stock-market value in two years. Circuit City plans to stay in business while it comes up with a plan to restructure.
``It's very incongruent for retailers to file bankruptcy before Christmas,'' Burt Flickinger, managing director of consultant Strategic Resource Group in New York, said in a Bloomberg Television interview. ``You're gong to see a record number of retailer bankruptcies and closings.''
Concerns among vendors that Circuit City wouldn't be able to pay for the merchandise it sells ``escalated considerably'' in the past week, the company said in the filing.
Web-Based Retailers
The chain, with 721 stores in the U.S. and 770 in Canada, has said competition hurt sales, especially at older locations in lower-income neighborhoods. Amazon.com Inc. and other Web-based retailers of computers, televisions and music also have lured customers away.
Circuit City fell 14 cents to 11 cents at 9:30 a.m. before the start of trading on the New York Stock Exchange. The NYSE halted buying and selling of the shares after the stock's early plunge.
On Nov. 3, the company said it would close a fifth of its U.S. stores and renegotiate leases on some locations to conserve cash. The closings will leave it with about 566 U.S. stores and trim about 20 percent of the 43,000-strong workforce. Circuit City also said today it cut 700 jobs in its regional and district store support department.
Circuit City said it owes about $650 million to suppliers, with electronics manufacturers Sony Corp., Zenith Corp., Toshiba Corp., Garmin Ltd. and Nikon Inc. among the creditors.
Circuit City tried to sell itself in May after Blockbuster Inc. made a preliminary offer that was later withdrawn. The retailer fired higher-paid workers and opened smaller stores to cut costs. Until the shift, the company's strategy had been to sell in locations as large as 44,000 square feet (4,090 square meters), which it calls ``superstores.''
Bankruptcy Financing
Circuit City said it obtained $1.1 billion in bankruptcy financing, which replaces a $1.3 billion line of credit.
The second-biggest U.S. electronics retailer hired FTI Consulting Inc. for restructuring advice and replaced its chief executive officer Philip Schoonover in September with Director James Marcum, who led two other retailers through bankruptcies. Marcum, an associate of activist investor Mark Wattles, was named interim CEO.
On Sept. 29, Circuit City reported a loss of $239.2 million that was more than triple from a year earlier after sales fell for the sixth straight quarter.
Circuit City's rivals gained market share by offering Apple Inc. and Dell Inc. computers. Larger Best Buy and discount retailer Wal-Mart lowered prices on flat-panel televisions to lure U.S. customers, who are limiting spending because of higher food costs, further job losses and declining home values.
The global financial crisis is making it harder for the chain to stock its shelves and for consumers to finance purchases.
The company took on more debt this year, increasing a $500 million revolving credit agreement to $1.3 billion in January, according to its most recent quarterly filing with the U.S. Securities and Exchange Commission. As of May 31, Circuit City said it still had $963 million available to borrow.
The case is In Re Circuit City Stores Inc., 08-35653, U.S. Bankruptcy Court for the Eastern District of Virginia (Richmond).
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Circuit City, one of America's best known high street names, has filed for bankruptcy protection after electronics manufacturers withdrew credit lines from the laptop to camera retailer.
Shares in the electronics group, which was founded in 1949, plunged by 56 per cent to just 11 cents as US trading opened after the business announced it would close 155 of its 600 American stores and renegotiate its shop leases.
The stores Circuit City is closing generated $1.4 billion in net sales in the financial year of 2008.
In a statement today, Circuit City said it has also managed to secure an emergency credit facility of $1.1 billion to reassure electronics suppliers that it can pay for goods.
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Circuit City has already sacked 700 staff across the country and has cut back at its main corporate headquarters in Virginia.
However, following its Chapter 11 bankruptcy protection filing, the company estimates that it will have sacked a fifth of its entire workforce after its restructuring.
Bankruptcy protection is a legal mechanism which allows a troubled company to keep its creditors at bay while it draws up a new business plan, which has to be approved by a bankruptcy judge. The process is devised to buy time for distressed companies to sort out their problems, cut costs and prevent them from going bust.
Circuit City said today that while the sharp slide in consumer demand had placed the retailer under strain, it was the behaviour of electronics suppliers which had been the final straw.
In a statement, it said: "Despite aggressive efforts to secure vendor support, vendor concerns about the company's liquidity and ability to pay for its purchases in this difficult economic climate have escalated considerably since the company provided a liquidity update on November 3, 2008, further impairing the company's ability to conduct business and provide service to its customers."
In a separate statement, the retailer explained that electronics companies had become so anxious about whether Circuit City would survive, they had demanded up front payment for all goods before they were shipped to the retailer.
Such a withdrawal of credit facilities has come at a critical time for the retailer which is trying to stock up ahead of the crucial shopping season which traditionally kicks off during the Thanksgiving bank holiday, in two weeks' time.
While Circuit City has been struggling for some time, the company admitted today that the speed of the slowdown among shoppers had taken it by surprise.
Only in May, its shares traded at more than $5, but have collapsed to as low as 25 cents on Friday evening.
James Marcum, vice chairman and acting president and chief executive officer of Circuit City Stores, said: "We appreciate the support we have received from our lenders in the midst of such a tight credit market.
"With this support, we believe we have the opportunity to leverage our market position and the strength of our brand to restore Circuit City to solid financial footing."
Circuit City is the latest American company to axe jobs, fuelling the astonishing rise in unemployment across the country.
At the end of last week, Ford said it would sack 10 per cent of its workforce, while earlier today DHL - the US parcel delivery company owned by Deutche Post - cut 9,500 jobs in America.
Wall Street was shocked last week when Washington's Labour Department published official data showing that around 6.5 per cent of the US workforce is now without a job. The rise - from 6.1 per cent - is far faster than economists had been expecting.
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