Circuit City failure adds to bleak job news
Bankrupt Circuit City Stores Inc. said Friday it was closing its 567 U.S. electronics stores and leaving its 34,000 employees jobless as the nation’s employment picture grew bleaker.
It was the worst day this year for news of layoffs, bank losses and store closings, and employers signaled more bad news ahead.
Car rental firm Hertz Global Holdings Inc., oil producer ConocoPhillips, chip maker Advanced Micro Devices Inc. and health insurer WellPoint Inc. all announced workforce reductions of 1,000 positions or more. And big cutbacks are expected soon at GE Capital Corp., drug maker Pfizer Inc. and media company Clear Channel Communications Inc.
Also Friday, two of the nation’s biggest banks said they lost money in the last three months of 2008. Bank of America Corp. said it lost $2.6 billion; Citigroup Inc. reported an $8.3-billion loss.
The litany of bad news came just days before President-elect Barack Obama’s inauguration and underlined the challenges he faces. The U.S. economy is reeling from collapsing home prices, a stubborn credit crunch and a sharp downturn in the stock market.
And as more companies pare their payrolls, experts said the recession that began officially in December 2007 would drag on for months. Circuit City’s announcement that it was pulling the plug for good also paved the way for more dead space in the nation’s shopping malls -- an everyday reminder of the troubles at hand.
“You have more and more companies either going out of business, as in the case of Circuit City, or concluding that there’s no sign of an upturn any time soon, and they have to take actions to protect themselves,” said Nigel Gault, chief U.S. economist at IHS Global Insight.
Circuit City, the nation’s second-largest consumer electronics chain, represents the first major retail collapse since the dismal holiday season ended and one of the biggest industry liquidations ever to take place in the U.S., experts said.
Going-out-of-business sales begin today, with merchandise discounted by 10% to 30%. All Circuit City stores in the U.S. -- including about 75 in California -- will close by the end of March, and markdowns could become as steep as 90% in the final days, said Andy Gumaer, chief executive of Great American Group of Woodland Hills, one of four companies appointed to liquidate the chain.
“Everything will be liquidated to the bare walls,” he said.
The 60-year-old chain had struggled to find a buyer after filing for Chapter 11 protection in November.
“We are extremely disappointed by this outcome,” James Marcum, acting chief executive of Circuit City, said in a statement. “This is the only possible path for our company.”
The company said its Canadian operations would continue.
At a Circuit City store in Hollywood on Friday, Geraud Brisson said he was stunned by how many employees would lose their jobs.
“It’s awful,” said Brisson, 38, who was shopping for a stereo system. Circuit City “always presented themselves as being so sturdy and institutional.”
Brisson, a film editor from Silver Lake, said the existence of fewer bricks-and-mortar electronics stores might drive him to shop for electronics online. “I think it might be the only place to compare products and have competition,” he said.
Eric Honanie, a safety compliance coordinator from Los Angeles, said he worried that prices would increase at some of Circuit City’s competitors. Shopping online wasn’t a viable option, he said, because it took away the experience of shopping for electronics in a store.
“I like to go out and look at things. You’re limited with your shopping online,” Honanie, 41, said. With electronics, “it’s a lot of touching and feeling.”
Circuit City, based in Richmond, Va., faced stiff competition in recent years from Best Buy Co., Wal-Mart Stores Inc. and online electronics sellers such as Amazon.com Inc.
After filing for bankruptcy protection two months ago, the company said it was confident that it would emerge intact and assured customers that the filing “does not mean that Circuit City is going out of business.”
But there were many skeptics from the beginning, said Marc Winthrop, a bankruptcy attorney at Winthrop Couchot Professional Corp. in Newport Beach.
“There was a lot of talk when they first went in that they weren’t coming out. They were gone,” Winthrop said. “In today’s environment, where sales are declining at the same time that capital is generally unavailable, they just couldn’t survive.”
The chain’s failure will bring “a lot of additional pain” for landlords who own Circuit City’s buildings and must find replacement tenants, said Steve Plenge of Pacific Retail Capital Partners, an El Segundo real estate investment firm.
“Backfilling more than 500 stores will be tough,” Plenge said. “There used to be three or four retailers in each big-box category such as electronics, and now it’s only one or maybe two.”
The Circuit City collapse was just the latest in a wave of retail liquidations that began last year. In recent months, Great American Group also has been involved in going-out-of-business sales at retailers Mervyn’s, Linens ‘n Things Inc. and Shoe Pavilion Inc., said Scott Carpenter, executive vice president of the group.
“This is unlike anything we’ve ever seen,” Carpenter said. “It’s like a tsunami of liquidations.”
Across the country, at least 85,000 layoffs have been announced this month, experts said. U.S. companies have announced more layoffs this month than they did in all of January 2008, when about 75,000 cuts were made public, according to employment firm Challenger, Gray & Christmas Inc.
Hertz said it would cut more than 4,000 jobs -- about 12% of its workforce -- as firms cut back on travel spending. Chip maker AMD, trying to navigate a sharp downturn in computer sales, plans to cut 1,100 jobs, or 9% of its workforce, and slash the pay of other workers.
Health insurer WellPoint, the parent of Anthem Blue Cross of California, said it would lay off 600 workers and eliminate 900 open positions, and Blue Cross Blue Shield of Michigan said it would erase as many as 1,000 jobs this year. ConocoPhillips said it would eliminate 1,300 positions as it copes with a steep slide in oil prices.
The cuts come on top of a bad week for workers across the country. Mobile phone company Motorola Inc. said Wednesday it would cut 4,000 jobs amid a plunge in cellphone sales, and layoff announcements have also come from Cessna Aircraft Co., luxury retailer Saks Inc., Seagate Technology, engine maker Cummins Inc. and software maker Autodesk Inc.
Earlier in the month, aluminum maker Alcoa Inc. said it would eliminate 13,500 jobs, and managed-care provider Cigna Corp., drugstore chain Walgreen Co., aerospace giant Boeing Co., data storage company EMC Corp. and vehicle manufacturer Daimler Trucks North America all announced major job reductions.
And more cuts may be on the way.
GE Capital, the financing division of General Electric Co., may lay off as many as 11,000 of its 75,000 workers, Bloomberg News reported. Clear Channel, the radio and outdoor advertising giant, is poised to cut about 1,500 jobs next week, and drug maker Pfizer plans to sack a third of its marketing workforce, or about 2,400 workers, according to the Wall Street Journal. None of the three would confirm the reports.
Retailers such as Circuit City that were struggling before the recession began are particularly vulnerable, said Alec Levenson, a labor economist at USC’s Center for Effective Organizations. And when they close stores or go into bankruptcy, it produces a ripple effect through the economy.
“If stuff isn’t being sold, then the companies that produce the stuff have to cut back too,” he said. “It’s all part of the same ecosystem.”
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Times staff writer Roger Vincent contributed to this report.
martin.zimmerman@latimes .com
