Circuit City Shrinks Self

Things are tough, especially in consumer electronics. Circuit City is really taking it on the chin. As we previously reported, the rumor was that CC was going to close stores to try to stay afloat. Now, that rumor has become reality.

It was officially announced that Circuit City will close 155 domestic stores and lay off 17% of its workforce. The official statement: "Due in part to its deteriorating liquidity position and the continued weak macroeconomic environment, the company has decided to take certain restructuring actions immediately, including closing 155 domestic segment stores, reducing future store openings, and aggressively renegotiating certain leases."

The company was caught in the same squeeze the rest of us are feeling: "The sharply worsened overall economic environment led some of Circuit City's vendors to take restrictive actions with respect to payment terms and the credit they make available to the company." The company also said it has been unable to collect an income tax refund of approximately $80 million that the company believes the feds owe them. Been there, done that.

The downsized Circuity City will be a significantly smaller outfit. For fiscal 2008, the shuttering stores generated approximately $1.4 billion in net sales. "The closing stores, as compared to the stores remaining open, on average had lower net sales, a lower close rate and a lower gross profit margin rate. The stores, on average, were also unprofitable when marketing expenses were allocated to the individual store-level results."

Not surprisingly, Circuit City also plans to reduce new store openings. The company said it revised its store opening plans for the current fiscal year and will not open at least 10 locations that were previously expected to be opened.

This is a serious blow, coming just before the big holiday season, when sales are usually huge. Hopefully, the move will stave off Chapter 11 bankruptcy. Good thing I haven't been opting for the "extended warranty" deal on my purchases there. Ken C. Pohlmann