Circuit City has been a leader in the consumer electronics industry for over sixty years; however, a bankruptcy filing may be on the horizon. One look at their stock chart and you will understand why. Circuit City has already hired a law firm to counsel them on the matter. Interestingly, it is the same law firm that represented Winn Dixie in their Chapter 11. Unfortunately, Circuit City is now starting to close stores, slash jobs and restructure long term leases in an effort to save costs. All this at a time when they should be stocking the shelves with additional merchandise for the Christmas Shopping Season.The reason I mention Circuit City is because I wrote a blog the other day on this very topic. In that blog, I discussed what I thought was going to be a major problem going forward, and that is the ability for businesses to secure financing going forward. If a business is not able to negotiate with its lenders or secure new financing going forward, Chapter 11 may not work.
Chapter 11 offers many benefits to troubled businesses and may opportunites to re-organize a business and make it stronger and more competitive; however, it may be much ado about nothing. Circuit City is having trouble or will have trouble finding financing to keep moving the company ahead. According to an article I read, lenders have shown little to no interest in lending to the troubled retailer, which may leave the company in dire straits.
Right now, I’m sure they are scrambling in an effort to secure new financing prior to the coming shopping season, and at the same time, they are negotiating with their landlords in an effort to cut costs. It seems that they leased quite a bit of high priced real estate under long term leases, and now, the same properties are valued at quite a bit less per square foot. If Circuit City is unable to negotiate their way out of this mess, Chapter 11 will be inevitable. On the other hand, if you were the landlord, and you knew that Circuit City was going to begin closing stores, would you really want to play hardball with the company or would you rather keep location rented and the money flowing into your coffers during a recession.
Circuit City is facing intense pressure from its rival Best Buy, and it will have to do some major re-structuring if it is going to survive in the future.
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