Circuit City Plugs into Bankruptcy Protection

By: CBS Business News
By: CBS Business News

With the holiday season fast approaching, the nation's second-biggest electronics retailer is struggling to avoid getting unplugged.

One week after announcing it would close 155 of its stores, Circuit City filed for Chapter 11 bankruptcy protection Monday, and said it would cut 700 additional jobs.

However, the electronics chain said it plans to stay open for business as the busy holiday shopping season approaches. Chapter 11 of the bankruptcy code allows a company to hold off creditors and continue operations while it develops a reorganization plan.

The chain had already announced thousands of layoffs associated with the store closures, which amount to roughly 20% of its retail outlets.

The Circuit City announcement was one of two big pieces of news today highlighting the weak state of the U.S. economy. From Germany, Deutsche Post announced that it will close all of its DHL Express service centers, cut 9,500 jobs in the United States including hundreds of jobs at its Lenexa, Kansas hub, and eliminate U.S.-only domestic shipping by land and air.

The company cited heavy losses and fierce competition with rivals UPS and FedEx. It noted that new job cuts -- part of a wider plan to curtail U.S. operations -- are in addition to 5,400 it already announced.

Circuit City has been struggling for months; as far back as April, reports had the chain hiring Goldman Sachs to look into the possibility of a sale. But over the last few months, the company has been struggling as nervous consumers spend less and credit has become tighter -- and the retail industry overall now faces what's expected to be the weakest holiday season in decades.

"This isn't a surprise," JPMorgan analyst Christopher Horvers said, adding that the reorganization could help the company get out of leases for certain bad store locations.

"At the end of the day I think it's really about an inventory position," Horvers said. "If they can get inventory into the stores, I can think they'll remain competitive."

Circuit City, which has had only one profitable quarter in the past year, has faced significant declines in traffic and heightened competition from rival Best Buy and others. The filing cited $3.4 billion of assets and $2.32 billion of debts as of August 31, with more than 100,000 creditors.


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