Circuit City, one of the top five retailers in the US for selling games, has filled for Chapter 11 bankruptcy protection. This move comes on the heals last week of its decision to close 155 stores in the US. The even worse news? Circuity City announced it would lay off 700 more workers in addition to the workers that would be displaced by the closing of its 155 stores.
The company's decision is believed to be prompted by a rapidly worsening credit crunch as part of a weaker US economy, which has put pressure on Circuit City to reduce its more than $2.3 billion debt. Some companies have insisted on upfront payment for goods delivered to the stores rather than allowing the company to put items on credit. Circuit City has just $3.4 billion in assets.
Apart from broader business decisions, the company's bankruptcy is believed prompted by the rapid expansion of Best Buy, which targets the same general electronics audience and regularly strikes exclusive deals for special products such as the iPhone 3G, which is normally only available through either Apple or AT&T shops. Best Buy has said it may occupy the spaces of stores like Circuit City or its similarly troubled equivalent CompUSA to expand its reach in certain areas.
RICHMOND, Va., Nov 10, 2008 /PRNewswire-FirstCall via COMTEX News Network/ -- Circuit City Stores, Inc. (NYSE: CC) today announced that it has filed a voluntary petition for reorganization relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Virginia ("Bankruptcy Court") in Richmond, Va. The company plans to continue operating the business without interruption as management focuses on developing and executing a comprehensive corporate restructuring plan. Circuit City's Canadian operations also will be seeking protection under the Companies' Creditors Arrangement Act in Canada ("CCAA").
In conjunction with the filing, Circuit City is seeking customary authority from the Bankruptcy Court that will enable it to continue operating its business and serving its customers in the ordinary course. The requested approvals include requests for the authority to make wage and salary payments and continue various benefits for employees as well as honor customer programs such as returns, exchanges and gift cards. In addition, Circuit City has negotiated a commitment for a $1.1 billion debtor-in-possession (DIP) revolving credit facility to supplement its working capital. The DIP facility replaces the company's $1.3 billion asset-based credit facility and is being provided by the same lenders. The facility provides additional immediate liquidity while the company works to reorganize the business and will permit the company to pay vendors and other business partners for goods and services received after the filing.