No reboot for Circuit City
- January 28, 2009
by Jessica Sabbath
Circuit City finally saw customers flocking to its stores in late January. But rather than a renewed interest in the company’s merchandise, the attraction was a going-out-of-business sale.
The Henrico County electronics retailer received permission from a federal bankruptcy judge to begin liquidation after it failed to find a buyer or enough financing to continue operations.
The move means 1,500 employees at company headquarters and more than 30,000 workers at its 567 remaining stores will be jobless within two months. Liquidation sales are expected to end by March 31.
The fall of Circuit City, a Fortune 500 company, is a major blow for the Richmond area, which has two other big-name companies in bankruptcy court. LandAmerica Financial Group, a Fortune 1,000 real estate transactions company, has sold its title insurance companies, which represented more than 85 percent of its business. Chairman and CEO Theodore Chandler left the company in mid-January. Meanwhile, Richmond based Chesapeake Corp., a packaging company started in 1918, is scheduled to sell its subsidiaries by April 3. (See For the Record, at left.)
Circuit City filed for bankruptcy court protection in November when some creditors refused to lend it money ahead of the holiday shopping season. In early January, the company put itself up for sale, but a deal failed to materialize.
David Urban, a marketing professor at the Virginia Commonwealth University School of Business, says he was not surprised by Circuit City’s demise. “For somebody coming in to buy it lock, stock and barrel — when people are scared of spending discretionary income anyway — would have been laden with risk, and to some extent, putting good money after bad,” he says. “My suspicion all along was that they’d end up selling everything they could — either in pieces, or dismembering the company.”
Circuit City had been struggling even before the recession hit late last year and worldwide credit markets tightened. Facing increased competition from industry archrival Best Buy and expanding electronics sales at discounters Wal-Mart and Target, Circuit City has posted losses for two years.
Tom Arnold, a finance professor at the University of Richmond’s Robins School of Business, says deteriorating economic conditions probably prevented the company from finding willing creditors. “The creditors have been hit hard by the economy as well, and we can see evidence of that with the credit freeze,” he says. “Consequently, if a good deal via liquidation was going to cross their path, they are going to jump at it…If Circuit City was going to continue as a going concern, there had to be something to entice the creditors, which doesn’t seem to be the case.”
Four companies are handling the going out-of-business sales. They guarantee that Circuit City will receive at least 70.5 percent of what it paid for its merchandise, including freight costs. Above that, Circuit City and the liquidators will split the sales.
Circuit City Stores’ started in Richmond in 1949, when Samuel Wurtzel opened the Wards Co. television and appliance store on Broad Street. The company eventually expanded into Wards Loading Dock, which included a 40,000-square-foot electronics showroom. The company began using the Circuit City name in 1981 and went public in 1984.
Given the company’s local growth, Arnold says its demise was “like a death in the family.”
Freelance writer Chip Jones contributed to this story.