Circuit City Seeks Bankruptcy

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Richmond, VA -- Circuit City Stores Inc. has filed for bankruptcy amid rising competition from Best Buy Co., Wal-Mart Stores Inc., and online electronics retailers. The petition for Chapter 11 protection in U.S. Bankruptcy Court in Richmond, Virginia, listed $3.4 billion in assets and $2.32 billion in liabilities. The company said it is entering court protection owing Hewlett-Packard Co. $119 million and Samsung Electronics Co. $116 million.

The Richmond-based company, founded in 1949 when Samuel Wurtzel opened the city's first retail television store, has lost more than $5 billion in stock-market value in two years. Circuit City plans to stay in business while it comes up with a plan to restructure.

Concerns among vendors that Circuit City wouldn't be able to pay for the merchandise it sells “escalated considerably” in the past week, the company said in the filing.

The chain, with 721 stores in the U.S. and 770 in Canada, has said competition hurt sales, especially at older locations in lower-income neighborhoods. Inc. and other Web- based retailers of computers, televisions, and music also have lured customers away.

On November 3, the company said it would close a fifth of its U.S. stores and renegotiate leases on some locations to conserve cash. The closings will leave it with about 566 U.S. stores and trim about 20 percent of the 43,000-strong workforce. Circuit City also said today it cut 700 jobs in its regional and district store support department.

Circuit City tried to sell itself in May after Blockbuster Inc. made a preliminary offer that was later withdrawn. The retailer fired higher-paid workers and opened smaller stores to cut costs. Until the shift, the company's strategy had been to sell in locations as large as 44,000 square feet, which it calls “superstores.”

Circuit City said it obtained $1.1 billion in bankruptcy financing, which replaces a $1.3 billion line of credit.

The second-biggest U.S. electronics retailer hired FTI Consulting Inc. for restructuring advice and replaced its chief executive officer Philip Schoonover in September with director James Marcum, who led two other retailers through bankruptcies. Marcum, an associate of activist investor Mark Wattles, was named interim CEO.

On September 29, Circuit City reported a loss of $239.2 million that was more than triple from a year earlier after sales fell for the sixth straight quarter.