Posted on 11/12/2008 11:26:12 AM PST by 2ndDivisionVet
Circuit City’s bankruptcy filing is causing concern among U.S. shopping center and mall property owners as they face the prospect of every Circuit City store turning into vacant space, Reuters reports (via Retailer Daily).
The No. 2 consumer electronic retailer will continue to operate through the rest of the year, thanks to $1.1 billion of debtor-in-possession financing from existing lenders, led by Bank of America. However, that financing must be brought down to $900 million by Dec. 29, and Circuit City will be forced to use holidays sales proceeds to repay other outstanding loans.
The liquidity will get them through the retail season, but it “remains to be seen” if they will get through the next year, retired bankruptcy judge Frank Conrad was reported as saying.
If Circuit City does end up closing the 566 stores that remain (after the 155-store cut announced last week), its retail landlords will suffer, Bloomberg writes. They first lose rental revenue because under bankruptcy protection a retailer can break a lease with court consent, unlike a regular store closing where rent is still due. Then the landlord is forced to find replacement tenants, which can often be a costly process.
Analysts have suggested that landlords try to renegotiate leases with Circuit City so as not to lose their business completely, but often that ability is blocked by constraints under their own lender agreements or by the new owner of a sold-off “problem” mortgage.
The market reacted harshly to the news: Shares of Developers Diversified Realty, which has 50 Circuit City stores and derives 1.7% of its annual revenue from them, fell 24.6% on Monday. Real estate investment trusts (REIT) Kimco Realty and General Growth Properties also declined 9.6% and 34% respectively. (General Growth dropped another 68% in Tuesday trading.) Simon Property Group and Vornado Realty Corp are among the other REITs that lost value.
“Traffic is down in malls throughout the United States and as a result, the landlords, depending upon how leveraged they are, may have to file bankruptcy themselves,” concluded Conrad.
Circuit City stores leasesBefore Circuit City filed for Chapter 11, retailers had announced about 6,000 store closings so far this year. According to its latest yearly report, most of Circuit City’s leases were set to expire between 2014 and 2023. The chain owns almost none of its stores.
Don’t forget the People’s Liberation Army Navy (PLAN) and People’s Liberation Army Air Force (PLAAF) as well. LOL
Or reeducation centers/Citizen Civil Defense Brigade armories.
Memo to self: Don’t buy any gift cards or long-term service agreements this Christmas.
lol...
1. Open brand new stores, shiny and clean with lots of new merchandise at decent prices. New employees who are glad to have their jobs are cheerful and helpful.
2. Initial success sparks explosive growth to new stores in locations not quite as good as the first wave of stores.
3. Profits roll in, causing a wave of pay increases and new hires of bureaucrats at the company level. Company executives become accustomed to big bonus checks and lots of assistants. Overpriced “retreats” and “seminars” become the norm.
4. First stores start to age and the new stores don't meet the profit projections that stockholders and managers have become accustomed to. Staff is cut back at the stores and prices are raised slightly. Customers notice and are less likely to come back. Executives continue lavish life style, oblivious to the impending doom.
4. Aging stores, old inventory, smaller less motivated staff and higher prices opens a door for new, leaner, meaner competition. Competitors develop and open new, shiny stores with new merchandise and good prices.
5. Slow, inevitable death of the big box store.
It happens all the time. Think back to the advent of big box stores in the early 1960s. In my area it was JM Fields, Grants, Bradlees, Globe, Ames, Montgomery Wards, and at least a dozen others. They are all gone. KMart is on the way out. WalMart, while still going strong, is starting to look more like KMart used to look.
Ask me about the Restaurant life cycle some time.
When I see the lists of all these retailers that are closing stores, I remember all of the times I was in a checkout line and the cashier asked, “Would you like to save 10% and charge it on a _______ card?”
I was telling hubby the other day that I expected to see a whole lot of certain stores closing shop. I listed the stores. I recounted when these stores opened their doors. (Clinton era stores that started popping up all over the place when credit was being handed out like candy.) What is happening was inevitable. When a house goes from being worth $160K in 2001 to $350K in 2006, you know that there are some shenanigans taking place in the credit industry, real estate, local government, etc. But at least everybody could purchase their giant screen LCD/HD blah blah blah and enjoy Monday Night Football!
And now we’ll bail out all of these criminal enterprises, I guess. I have sympathy for the consumers more than the businesses. Businesses are supposed to be run by people who know what they’re doing. Consumers are supposed to be told “no” when they are in over their heads financially.
Obambam is already breaking things.
A new Circuit City store opened a few months ago near me. I drive by it every afternoon on the way home from work, and there are rarely more than 10 cars in the parking lot out front. Those have to belong to the store employees, I imagine.
I did stop in one time to check it out. I was the only customer in the long aisle full of expensive HDTV’s, many of them going for several thousand dollars. Nobody came over to help me, I just stood there watching TV. I don’t think there was anyone over the age of 20 working there that day. I had to leave the store since the rock music they were playing was turned up to deafening volume, and it was impossible to think straight.
My thoughts upon leaving the store? “This company is toast!”
That’s my take on the deal. Wal-Mart, Target, and Best Buy have the same Chinese container ship crap.
Another freeper posted that he had sympathy for the employees. My experience in setting up and using a wedding registry at Linens n Things was that the employees didn't care a bit about customer satisfaction and were grossly inefficient. I'm not surprised that they will be spending their christmas season in the unemployment line.
I only went into LnT once or twice, didn’t notice a problem with the employees. But it was basically the same store as BB&B, only BB&B is closer to home and constantly sending me coupons (the rate of couponage increased dramatically after LnT opened) so there wasn’t much reason to keep going to LnT.
There will be no holiday proceeds.
How about “Short Circuit”?
Funny how up until now, they’ve been championing DIVERSITY.
Circuit Ghetto
Best Buy announced results below Wall St expectations today. Perhaps you'll be down to just Walmart soon.
Try ... "Circuit Breaker"
I wonder what they will do for all those people who bought their service plans on credit cards.
The situation in Canada is...Best Buy check, Wal-Mart check, Costco check, Sam’s Club check, Radio Shack....? Radio Shack in Canada was bought out by Circuit City and renamed The Source by Circuit City. There are no real Circuit City stores in Canada...just old Radio Shacks renamed and the inventory still looks like the old Radio Shack. Not sure what will befall these outlying operations.
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