After 60 years, Circuit City is finally going out of business.
Citing the poor economic climate, Circuit City is closing all of its 567 stores in the United States, and beginning the liquidation of inventory immediately. 34,000 will lose their jobs as a result of the closures.
Closing sales began as early as Saturday, January 17, and they will continue until existing inventory is closed. These sales are expected to last until the end of March. As soon as the inventory is gone, the stores will be closed.
The deals at the liquidation sales will potentially be very good, but the prices and discounts are not being announced. The liquidation is being run by a third party who will set prices and return policies during the transition.
The Circuit City website is already offline, so it appears that online purchases will no longer be possible. Consumers that still have gift cards must then use them in a store before the closures. After all the stores close, all gift cards will lose their entire value.
Warranties issued by Circuit City for past purchases are still valid, as they are backed by a third party company, Assurant Solutions.
For the thousands of people losing their jobs, they will receive either 60 days notice before being laid off or will receive 60 days worth of pay and benefits if they have been laid off without warning. A small number of staff will remain at the corporate headquarters in Richmond, VA, and the stores in Canada will be unaffected by the U.S. closures. Circuit City employees approximately 3,000 people in Canada.
The economic death just keeps spreading. After hitting the financial industry, the housing industry and the car industry, the retail industry could very well collapse in the coming months. Following a dismal holiday shopping season and riding the coattails of highly publicized bankruptcies at Linen’s ‘N Things, Circuit City and KB Toys, as many as 25% of retailers may file for Chapter 11 protection in the first quarter of 2009.
In comparison, only 4-7% of retailers were expected to file for bankruptcy protection this time last year. Retail has long had the reputation of being one of the hardest businesses around, and the industry normally operates with many firms on the verge of bankruptcy. The current numbers, however, are unprecedented.
The Wall Street Journal reports that the first retailer to go under during the post-holiday season could be Goody’s Family Clothing, Inc., an apparel retailer in the Southeast with 287 stores. The company emerged from bankruptcy court in October, had a weaker than expected holiday season and may be seeking outside financing or loans. Goody’s is reportedly trying to avoid a potential liquidation by seeking outside help.
Many retailers that do not liquidate will likely trim inventory and cut suppliers, causing a ripple effect to other industries. Weaker manufacturers, small brands and cash-strapped fashion labels may fail even if the retailers themselves do not.
“We will have a lot fewer stores by the middle of 2009,” Nancy Koehn, professor of business administration at Harvard Business School, told the Wall Street Journal. “It’s happening very, very quickly because of the financial crisis and the recession.”
On the same day that Chrysler announced that it would close down all U.S. factory production for at least 30 days, the White House announced that President George W. Bush and Treasury Secretary Henry Paulson were considering an “orderly” bankruptcy for Chrysler and General Motors. Both companies are seeking billions of dollars in bailout money to avoid having to shut down production longer than the normal two-week holiday break that is scheduled for most years.
Bankruptcy would be one part of an larger rescue package for the companies, part of the “Big Three” American automakers. Ford has announced that they are no longer seeking bailout money or participation in other rescue package.
In order to file for bankruptcy, The New York Times reports that the deal would require concessions from the United Auto Workers union, suppliers, banks, the federal pension board and others.
If the companies filed for Chapter 11 bankruptcy protection, the government would provide enough money for the two companies to operate for several months. Major banks would provide debtor-in-possession financing so that the companies could continue to fuction while under bankruptcy. The cash from the federal government would only be used as a backup, for security.
”I will tell you this: the president is not going to allow a disorderly collapse of the companies,” said Dana Perino, President Bush’s spokeswoman. “Disorderly collapse would be something very chaotic that is a shock to a system. There’s an orderly way to do bankruptcies that provides for more of a soft landing. I think that’s what we would be talking about. That would be one of the options.”
Perino also stressed that no deal has been struck and there was no indication as to the timeline of such a deal.