Circuit City powers down
With consumer spending down, a stifling economy and losses in eight of the last nine quarters, Circuit City Stores Inc. said Monday that it would close about 20% of its more than 700 U.S. stores and fire about 17% of its employees by the end of the year.
One bit of silver lining for consumers is that they can snag some bargains for the holidays as the nation’s second-largest consumer electronics retailer starts liquidation sales Wednesday at the 155 stores it is closing nationwide.
Circuit City will be pulling out of a dozen metropolitan markets altogether, including Phoenix and Kansas City, Kan.
The stores to be closed include 24 in California, half in such Southern California cities as Compton, Pomona, Riverside and Thousand Oaks.
The company joins such diverse retailers as Home Depot Inc., jeweler Zale Corp. and PetSmart Inc. as chains that have announced store closings.
More will be coming, especially in January, as reduced consumer spending and tight credit markets wreak havoc on retailers, said economist Peter Morici, a University of Maryland business professor.
“This is a sector in distress,” he said. “Margins are going to be very tight; it’s going to be hard to get sales.”
Consumer spending fell 3.1% in the third quarter, the first decline in quarterly spending since 1991 and the biggest since 1980. The rate is key because such spending accounts for two-thirds of the U.S. economy.
Business strategist Burt P. Flickinger III at Strategic Resource Group predicts that the next six months will be plagued by a record number of retail bankruptcy filings and massive store closings as firms try to shed unprofitable stores.
For Circuit City, the stores being closed accounted for $1.4 billion in sales in its last fiscal year but were considered to be “underperforming,” with lower profit margins and sales than other stores, spokeswoman Jackie Foreman said. The company will have 566 stores open going into next year.
“The weakened environment has resulted in a slowdown of consumer spending, further impacting our business as well as the business of our vendors,” said James A. Marcum, the chain’s acting chief executive. “The combination of these trends has strained severely our working capital and liquidity.”
Sales fell 9.6% to $2.4 billion for Circuit City’s fiscal second quarter, which ended Aug. 31, from the same period last year.
The Richmond, Va., retailer also is scrapping plans to open 10 of 12 new stores and renegotiating certain leases to lower rent. About 7,300 of its 43,000 employees will be laid off.
The company’s moves have been a long time coming, said analyst Stacey Widlitz at Pali Capital Inc., a financial services firm.
Circuit City opened more stores during the housing boom than it could sustain in the long term, Widlitz said. Now that consumer spending is down, the company must compensate by cutting back.
“In the past five or six years, you’ve seen people take money out of their homes and spend like crazy, racking up debt,” she said. “Retailers benefited from that and built more stores.
“All of a sudden, when this came to a head, we realized the retail environment was over-stored and seeing an artificial bump in spending,” Widlitz said. “Now we have to come up with a rational plan to reduce capacity, and a lot of retailers have done that.”
Circuit City’s cutbacks could benefit the Best Buy chain, its biggest competitor.
“Best Buy is in a different financial situation,” Widlitz said. “I’m sure they’re feeling the economy, but they’re still growing U.S. stores.”
On Wall Street, Circuit City shares rose 10 cents Monday to 36 cents, a 38.5% gain.
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Times staff writer Jerry Hirsch contributed to this report.
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Southland store closures
Of 24 Circuit City stores being closed in the state, half are in Southern California. Their locations:
* City of Industry
* Compton
* Escondido
* Fontana
* Foothill Ranch
* Mira Loma
* Moreno Valley
* Murrieta
* Pomona
* Riverside
* Thousand Oaks
* Vista
Source: Circuit City Stores Inc.
