Circuit City ripples go beyond vacancies, layoffs

Associated Press ^ | February 4, 2009 | VINNEE TONG and EMILY FREDRIX

[NRG1973]

Circuit City will finally flicker out when its last 567 stores close this year, but the bankruptcy of the nation's second-largest electronics retailer will ripple across the U.S. economy for years.

In its wake will be 18.71 million square feet of vacant space in a faltering real estate market. More than 40,000 workers will be jobless, including 7,000 laid off last year.

Shopping centers will lose rental income. Suppliers will lose display space. Newspapers already struggling with falling ad revenues will have one less glossy insert in their Sunday editions.

Circuit City is bigger by far than any other retailer that has gone under in the current recession. The job outlook for its workers is far worse. The prospects for suppliers finding other customers is grim, and a larger pool of creditors are likely to go unpaid.

"The situation today is so different than" during other downturns, said Jerry Mozian, a restructuring expert at Tatum LLC. "It wasn't the whole economy. Here, we've got a worldwide recession."

Other big retail bankruptcies, like Macy's in 1992 and Kmart's in 2002, ended in reorganizations or buyouts rather than liquidation.

Circuit City initially hoped to reorganize when it filed for Chapter 11 protection in November. It was sagging under the weight of $2.32 billion in debt and dismal sales as consumers cut back. But the 60-year-old company couldn't work out a sale or secure new financing, and on Jan. 16 announced it would close for good.

The chain owes nearly $625 million to its 30 largest unsecured creditors — mostly vendors who supply the DVDs, flat-screen TVs and headphones on Circuit City shelves. They must wait to be paid until secured creditors such as bank lenders are satisfied.

[NRG1973]

I'm not a big fan of the AP but this is a good article and they deserve credit for publishing it. It explains that these store closures have an impact that goes far beyond the employees directly affected. The losses to the creditors and the malls will have a drag on the economy for quite a while.

[Alberta's Child]

Good points here.

I'd also suggest that the pressure to impose some sort of sales tax on internet purchases is heavily influenced by the desire on all levels of government to save large segments of the commercial real estate market. When a big retailer goes out of business, its impact goes far beyond its shareholders, employees and suppliers.

[libh8er]

It will cause a ripple but like all ripples this one will die out too.

[rabscuttle385]

*Ping!*

[rabscuttle385]

The Money, Banking, and Financial Markets Ping List. "Money, not morality, is the principle commerce of civilized nations." —Thomas Jefferson FR Keywords: moneylist, bankinglist, financelist Please tag all relevant threads with the aforementioned keywords. This can be a very high-volume ping list at times. Ping list jointly pinged by rabscuttle385 and TigerLikesRooster. To join the ping list: FReepmail rabscuttle385 with the subject line add  moneylist. (Stop getting pings by sending the subject line drop moneylist.)

[hosepipe]

Obviously hireing democrats for upper management can kill an extremely popular business.. evidently ANY very profitable business..

Wonder if demoting any democrats in our military upper management would make the military more efficient.. and much more secure?..

[Old Sarge]

Ripples become tsunamis - especially if fanned by a sufficient enough “stimulus”...

[Yo-Yo]

I'd also suggest that the pressure to impose some sort of sales tax on internet purchases is heavily influenced by the desire on all levels of government to save large segments of the commercial real estate market.

Are you talking about a National Internet Sales Tax? Because in Michigan you are already required to report any internet purchases and pay State Sales Tax when you file your State Income Tax Return. I believe that is also true in most states.

People who thing internet sales are tax free are wrong.

[UncleDick]

It’s a correction. Inefficiencies in the economy are being rooted out and unproductive land/labor/capital are being liquidated and reorganized into more productive uses. The best thing that the government can do right now is stand back and watch as private human action makes the economy stronger and more efficient than ever before.

[Frantzie]

The AP helped elect Obama so they are somewhat responsible for this economic disaster.

[UncleDick]

Are you talking about a National Internet Sales Tax? Because in Michigan you are already required to report any internet purchases and pay State Sales Tax when you file your State Income Tax Return. I believe that is also true in most states.

People who thing internet sales are tax free are wrong.

Taxes exist only insofar as the government has the power to collect them. Until California (or any other state) develops a mechanism for enforcement of sales tax on Internet transactions, the tax does not exist. I pray that the incompetence of our government and freedom of the Internet prevail over the greed of politicians.

[antiRepublicrat]

“and dismal sales as consumers cut back”

The economy was only the straw that broke the camel’s back. Circuit City wasn’t being managed all that well in the first place, and that set it on the road to bankruptcy. When people blame the current economy they have to ask why Best Buy isn’t going under.

[scott7278]

I can’t speak for all the Circuit City stores, but the one close to me is almost directly across the street from Best Buy. They never had the selection that Best Buy did.

I gave them a few chances, but after awhile I would just head straight for BB - if not, I would wind up there anyway.

Sometimes, I was looking for something more expensive than what they had. Often, I was looking for a product that was less expensive.

I imagine it was fine for people who didn’t know (or care) about all the products out there. The Internet has produced more knowledgeable people, and my local CC couldn’t meet the demand.

[OneWingedShark]

>$2.32 billion in debt

That’s why “In the black” operations are the best.

[proxy_user]

Will customers buy any more or less electronic goods because of this closure? Or will the other stores that remain open get more business than they would have got?

[OneWingedShark]

>Wonder if demoting any democrats in our military upper management would make the military more efficient.. and much more secure?..

Probably.

[Yo-Yo]

Taxes exist only insofar as the government has the power to collect them. Until California (or any other state) develops a mechanism for enforcement of sales tax on Internet transactions, the tax does not exist.

Gee, seeing as California already has just such a mechanism, then I suppose purjury to avoid paying taxes is an option in your world.

You should get a job in the Zero administration, it sounds like you have the tax dodging qualifications covered.

[rllngrk33]

...but the one close to me is almost directly across the street from Best Buy

The one close to me is directly across the street from Best Buy. I went into it last week to see if there were any bargains. Most stuff was only 10% off, there wasn't much of a selection and the store was a mess.

Best Buy is beginning to look like Circuit City. I'll bet they're bankrupt and out of business in a couple of years.

[rbg81]

I rarely buy electronics at stores anymore. I may look there, but don’t buy. The best deals by far are online.

[Free_SJersey]

To say that the internet killed Circuit City is inane. Circuit City has been trying to commit suicide for years. The last thing I bought at that store was a dishwasher. It was also the last thing I saw there that was a better deal than I could get at three other stores within a half mile. They stopped selling appliances about the time they got rid of a lot of the knowledgeable sales people they had and replaced them with smart mouthed kids. Their ads have been bait and switch for years; ten minutes after the sale starts, the item is out of stock. Stores were laid out glitzy, but poorly. Want some low cost cables- forget it about it. They only sold (or tried to sell) high profit junk. The store that had the cable I wanted also gained the sale of a hard disk drive that I had been thinking about and a 42" LCD TV. But back to their staff; I've been working on A/V equipment, analog and digital longer than most of their sales staff had been alive and whether it was lack of training or the way they were trained, I never thought that much B.S. could flow from anyones mouth. I've been in their stores maybe once a month for several years and never bought anything. It was usually an act of desperation going there.

Yes, I have bought on the Internet, but I prefer to buy where I can see the item even it costs a bit more. I want what I want when I want, without any b.s. (I pay cash, too, and no extended warrantees). Best Buy isn't much better.