Circuit City Cleared To Sell Off Its Assets By V. Dion Haynes Washington Post Staff Writer
Saturday, January 10, 2009; D03 http://www.washingtonpost.com/wp-dyn/content/article/2009/01/09/AR2009010903407_pf.html Circuit City was authorized by bankruptcy court yesterday to sell some or all of its assets, and a company spokesman warned that the nation's No. 2 electronics retailer could go out of business if a buyer does not emerge by Friday. U.S. Bankruptcy Court Judge Kevin R. Huennekens in Richmond approved Circuit City's plan to pay its creditors by selling to one of two potential buyers with whom it is negotiating or by auctioning its operations to bidders on Tuesday. Circuit City did not disclose the identities of the potential buyers, describing them in a statement only as "two highly motivated and interested parties." The company's preference is to sell to someone who would keep the company intact and the brand alive, a spokesman said, but it's entirely possible that it would be broken up and sold bit by bit. But if no buyer is found by Friday, the court's and creditors' deadline for reaching a deal, "then we would move to sell the inventory down and the company would be going out of business," Circuit City spokesman Bill Cimino said in an interview yesterday. Analysts have said for weeks that the Richmond-based company, which closed 155 stores in the final months of 2008 in wake of its Chapter 11 bankruptcy protection filing, could be the first casualty of what has been described as one of the worst holiday shopping season on record. "This is not unexpected," said David J. Urban, chairman of the Virginia Commonwealth University school of marketing. "Everyone knows that since November the company has been gasping for air." Circuit City attributed its November bankruptcy filing to the credit crunch. Officials said 75 percent of the company's transactions are made on credit cards. Sales plummeted as consumers were no longer able to get credit or scaled back on their purchases. Declining sales hindered the company's ability to make inventory payments to vendors, who in turn tightened credit on Circuit City. As a result, the company was limited in buying merchandise to stock its shelves. Conditions were made even worse by a grim holiday season and the unprecedented 1.7 percent decline in sales across the retail sector last month. Despite drastic price cuts, sales dropped at Macy's, J.C. Penney, Abercrombie & Fitch, Costco and many other retailers. Best Buy's December sales dropped 6.5 percent. Circuit City, while not disclosing figures, said sales "improved significantly in the last two weeks of December." But analysts blamed Circuit City's woes on numerous missteps made by corporate leaders, which made the company vulnerable going into the slowdown. The company, which has been credited with inventing the electronics box store model, was the No. 1 electronics retailer in the 1990s when it launched other businesses -- HVAC, home security, DVD rentals and even CarMax. "Circuit City was a fantastic growth story in the 1980s," said David Schick, retail analyst for Stifel Nicolaus. But the ventures "sucked away money and attention" from the core business, Schick said. "They opened the door for Best Buy to come in." Analysts said the company also erred when it switched from commission to non-commission sales and fired top-paid and top-performing salespeople in a move to save money. Stacey Widlitz, a retail analyst at Pali Capital Research, said the company's internal problems and the slowdown may be hurdles that are too high for a potential buyer to clear. In April, Blockbuster made an unsolicited bid for the retailer but pulled out a few months later as the economy began to slow. "The economy is going to be an insurmountable challenge to turn the company around," she said. "The culture has been changed so many times in the last few years -- that's another thing that will be a problem." Circuit City officials said they would prefer to keep the company intact. But if they don't get a solid offer they may sell company assets -- store leases, inventory, office furniture, the company plane. Buyers could opt to retain the name or shutter the stores. Such sales typically result in a devaluation of assets, analysts said. When Circuit City closed 155 stores recently, its liquidation sales "did not bring in everything we thought it would," company spokesman Cimino said. -- ================================ George Antunes, Political Science Dept University of Houston; Houston, TX 77204 Voice: 713-743-3923 Fax: 713-743-3927 Mail: antunes at uh dot edu *********************************** * POST TO [email protected] * *********************************** Medianews mailing list [email protected] http://lists.etskywarn.net/mailman/listinfo/medianews
