Circuit City Stores Inc. filed for Chapter 11 bankruptcy protection Monday, just a week after closing 155 stores nationwide.
Despite the filing, Circuit City said it plans to stay open for the bustling holiday shopping season.
According to a statement from Circuit City, the country's second largest consumer electronics retailer, it filed under Chapter 11 of the bankruptcy code in a Virginia court, which enables the company to hold off creditors and continue operations while it devises a reorganization plan.
The Richmond, Va.-based chain last week announced that it's shuttering 155 stores and curtailing store openings in response to its deteriorating liquidity position and the weak economy. Circuit City is also struggling with tighter credit terms from vendors which, to combat their own tight financial situations, are requiring retailers to pay up-front before product is shipped. Circuit City also continues to lose market share to other electronics retailers like Best Buy, Wal-Mart and others.
Along with closing the stores, which impacts outlets in 28 states, Circuit City is also laying off about 17 percent of its work force. Circuit City plans to cut 700 more jobs as it faces the prospect of entering one of the slowest holiday shopping seasons in recent years.
Circuit City's financial outlook has been bleak in recent years, with the company losing money in five out of the last six quarters. According to documents filed Monday, Circuit City had $3.4 billion of assets and $2.32 billion of debt as of Aug. 31 and has more than 100,000 creditors, including a host of manufacturers like Hewlett-Packard, Samsung Electronics, Sony, Toshiba, Zenith and others.
According to Circuit City, the company is seeking authority from the bankruptcy court that will enable it to continue operating and continue paying and providing benefits for employees. Under the filing, Circuit City also requested the authority to honor customer programs including returns, exchanges and gift cards. Circuit City also noted that product warranty and service plans sold under Circuit City Advantage Protection Plans should not be impacted by the Chapter 11 filing.
Additionally, Circuit City has negotiated a commitment for a $1.1 billion debtor-in-possession (DIP) revolving credit facility to supplement its working capital. That DIP facility replaces Circuit City's $1.3 billion asset-based credit facility.
James Marcum, Circuit City vice chairman and acting president and CEO, said in a statement that the filing should give the company the opportunity to strengthen its balance sheet and create a more efficient expense structure. Ultimately, he said, filing for bankruptcy would allow Circuit City to compete more effectively.
"We appreciate the support we have received from our lenders in the midst of such a tight credit market," Marcum said in a statement. "With this support, we believe we have the opportunity to leverage our market position and the strength of our brand to restore Circuit City to solid financial footing."
"We understand how difficult the recent announcements have been on everyone at the company, and we recognize the changes personally affect many people," Marcum continued. "Further, we know there is never a good time for individuals to be impacted by decisions like these, and we deeply regret the effect this has on our associates. I want to thank them for their continued loyalty and dedicated effort as we go forward with the belief that implementing long-term and lasting change to our business will come by satisfying our customers, one at a time."
