Monday, November 10, 2008

Circuit City Files Chapter 11 Bankruptcy

This is no suprise to us, right? I've posted about Circuit City and their woes going back to April 15th, when Blockbuster said they would buy them. At the time of the anouncement I believed it was one of the dumbest acquisition announcements I have EVER seen in my life (or read about from older times). Blockbuster, a struggling retailer in their own right and one without a spectacular balance sheet thought they would buy Circuit City on April 15th (tax day as well).

By July, Blockbuster woke up (management probably was tired of being told they were the biggest idiots in the room) and backed out of the deal. I know this is bold language but it seemed like a complete "NO BRAINER" type of deal NOT TO DO.

So lets take a look at some interesting facts about Circuit City and their industry.
1) Their stores are DEAD when it comes to foot traffic vs. Best Buy.

2) I find it interesting that Ultimate Electronics, Tweeter and Circuit City have all died a painful death in the last few years.

3) Linens N Things went into Chapter 11 earlier this year. Recently they went Chapter 7 and began liquidating assets (ie. completely shutting down.) Circuit City announced a 20% store closure last week, big cuts in management LATE last week, Chapter 11 this week and likely, in my opinion, Chapter 7 eventually.

Seriously, these guys have been HEMORHAGING cash for some time, they have NO differentiation vs. Best Buy (me too concept) and people have STOPPED shopping there altogether (at least people I know.) Who will buy a $2000 TV from a bankrupt retailer? We'll see how it plays out in the stores but I am NOT optimistic re: their future.

Dan Ross

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