Circuit City Files For Bankruptcy

WillDraven is just one of many who writes to tell us that Circuit City, the United States' 2nd largest consumer electronics retailer, has filed for bankruptcy under chapter 11. This news comes as no surprise as the company has been in financial trouble, recently announcing that it will be closing over one fifth of its stores and laying off 17% of its US employees in the process. "Larger rival Best Buy, which is based in Minneapolis, has said it might take over stores that distressed rivals close. Yet a flood of discounted merchandise from liquidating Circuit City stores could hurt Best Buy during this holiday shopping season, said Jefferies & Co analyst Dan Binder."

Comments

Yeah, You Could Say That

[eldavojohn]

This news comes as no surprise as the company has been in financial trouble ...

"Financial trouble" doesn't begin to describe it, their stock's been below 25 cents for a few days now. I was debating on blowing 20 bucks and demanding the paper stock be sent to me so I could have fancy roll of toilet paper to put near the can when guests are over. It wouldn't be a horrible investment as I'm sure it'd have other uses too ... lighting cigars with it, using it as wrapping paper for Christmas, etc. A man's gotta increase his perceived wealth among his peers, you know.

USE UP YOUR GIFT CARDS!

[BUL2294]

One thing that people don't realize is that when retailers declare bankruptcy, their gift cards are worthless. You're considered an unsecured creditor, which puts you in the back of the line among all other creditors. If there's anything left, you might get pennies on the dollar for what the card is worth--a few years down the road. Some companies plead their cases with the courts to allow gift card holders to use them--after all, if those people lose their card values, they won't be shopping at the now-bankrupt company, especially when the company needs those customers most...

At least Consumers Union is trying to petition the FTC to force companies to honor outstanding cards... But I can only see this happening if a retailer chooses to reorganize--forget it if they're liquidating.

So, the best advice is to use up your gift cards NOW , before the retailer goes under. Given that Linens & Things, Lilian Vernon, Sharper Image, and now Circuit City all went bankrupt in 2008, this problem will get worse FAST.

I'm curious to know if this is a problem limited to U.S. retailers... Is this an issue in Europe, Japan, etc.?

Re:I can't bring myself to have much pity for them

[Shakrai]

I'm not familiar on Ohio law, but in many places it's illegal to not have some form of ID when over 18.

Too bad, because if you had bothered to become familiar with Ohio law before opening your mouth you would have discovered that Ohio law specifically says that you aren't required to hand over ID:

"Nothing in this section authorizes a law enforcement officer to arrest a person for not providing any information beyond that person's name, address, or date of birth or for refusing to describe the offense observed."

And BTW, just where in the United States is it illegal not to have ID on you?

Re:I can't bring myself to have much pity for them

[corsec67]

It depends on the state, but in Colorado, an employee can detain someone if the theft detection alarm goes off.
From the Colorado Revised Statutes, 18-4-407.

Re:I can't bring myself to have much pity for them

[DisKurzion]

It wasn't just the commission based sales force. My friend worked in the stock room for several years, and was making a pretty decent wage, and was up for a promotion within a month (his current supervisor was stepping down).

He was one of those victims of the "we raised your pay too much so now we're gonna fire you."

He wasn't even allowed to re-apply because "he was too qualified."

Firing my friend in that manner lost them a lot of business. I also boycotted Circuit City when that happened. As did all of my other friends, and our families. All in all, that added up to about 50 people.

I suspect that this situation was not unique, and was undoubtedly the killing blow through the heart of the weakened CC.

Re:La Source

[Skevin]

Radio Shack has unrecognizably revamped themselves throughout their lifetime. The original name came from back when they were selling equipment catering to ham radio enthusiasts. Then, at some point, they were only selling record players and stereos in the 40's, and suddenly the staff dumbed down - my grandfather had difficulty requesting things like 3200-ohm resistors anymore, or having them made behind the counter by staff.

In the 1960's they declared bankruptcy (just like CC this morning), but a certain Charles Tandy bought them out. Tandy was a leather mogul, and the chain was temporarily renamed... wait for it... Tandy Radio Shack & Leather! Radio Shack was the place for all your leather needs! BTW, I have a genuine Radio Shack bullwhip in my attic. Too bad I never got around to asking for a ball gag and blindfold.

Then they went back to concentrating on low level electronic components. Then they switched the emphasis on to trying to sell home computers. Then they switched to almost strictly consumer electronics.

So I don't think of Radio Shack as a cockroach, whose form hasn't changed for millions of years... It's more like the Phantom, when each one dies, it passes the name and costume to someone in the next generation, who most likely has different tactics and fighting styles.

How to Ruin a Company from Moon of Alabama.org

[Philip K Dickhead]

Main How To Ruin A Retail Company

A prime case study on how to ruin a retail company:

• Profits from sales were down a bit, because some retail sales changed to the Internets.
• Management switched salespersons from commission based pay to meager hourly wages.
• Sales droped further.
• Management fired long-term, experienced and expensive salespersons and hires unqualified but cheaper people instead.
• Sales drop further.
• Overpaid management gets fired.
• New management finds the company is bankrupt.

Circuit City Fires 2,000 Workers to Cut Costs, Feb. 6, 2003
Circuit City Stores Inc. has fired 2,000 people, including salespeople at its outlet near Gateway Mall in Springfield, in a move to cut costs.

The electronics retailer announced it is firing 5 percent of its work force and also converting commissioned sales people to hourly pay.

Circuit City to Fire 3,400, Hire Less Costly Workers, March 28, 2007
Circuit City Stores Inc., the second-largest U.S. electronics retailer after Best Buy Co., fired 3,400 of its highest-paid hourly workers and will hire replacements willing to work for less.
...
"Firing 3,400 of arguably the most successful sales people in the company could prove terrible for morale," Colin McGranahan, an analyst with Sanford Bernstein & Co., wrote in a note today. "The question remains as to whether Circuit City can rebuild in time for the all-important holiday season."
...
Circuit City shares rose 35 cents to $19.23 at 4:18 p.m. in New York Stock Exchange composite trading.
...
In 2003, Circuit City switched employees from commission- based pay to hourly pay, matching an earlier move by Best Buy. That switch had a "dramatically negative impact on sales," McGranahan said today.

Circuit City, Electronics Retailer, Seeks Bankruptcy , Nov. 10, 2008
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.
...
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 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.

Without well motivated sales-persons any specialized retailer can only lose.

Here the shareholders lost too. No tears for them. Why did they not stop the disastrous management plans?

Only long term Circuit City CEO Philip Schoonover, who was only fired six weeks ago, made a fortune by ruining the company. He got more than twice per year of what successful retail chain CEO's got. From the second link:

Chief Executive Officer Philip Schoonover was paid $8.52 million in fiscal 2006, including a salary of $975,000. Best Buy CEO