Bankrupt Circuit City Stores Inc., unable to find a buyer, said Friday it will go out of business, closing its 567 U.S. stores and laying off its 34,000 workers. About $1.8 billion in retail inventory will be liquidated in sales lasting six to eight weeks.
"This is the only possible path for our company," Circuit City's acting CEO James Marcum said in a statement. "We are extremely disappointed by this outcome."
The electronics retailer, in bankruptcy proceedings since November, had been in talks with two potential buyers, but couldn't reach an agreement with its creditors and lenders. Some retailer observers saw Circuit City's quick exit as a sign that that the credit crisis will finally force the retail industry to right-size itself after decades of unbridled expansion.
"We are incredibly over-stored in many sectors," Stacey Widlitz, an analyst with Pali Research, told The New York Times. "If you don't have the balance sheet to really weather the storm for a couple of years, then that's it."
The 60-year-old chain also faced stiff competition in recent years from Best Buy and Wal-Mart as well as scores of online consumer electronics players. But many believe a good number of Circuit City's problems were self-inflicted. These included buying cheap real estate leases in inferior locations and a failed strategy to open smaller locations. Increasingly shoddy customer service was most mentioned as its biggest downfall, marked by a move in March 2007 to fire its most-experienced - albeit higher-paid - workers.
"This company made massive mistakes," George Whalin, president and CEO of Retail Management Consultants, told CNNmoney.com.
Circuit City's demise will put more pressure on the nation's malls, already suffering from the exits of large anchors such as Steve & Barry's and Mervyns.
"It will bring to market a glut of big box spaces across the country," John Bemis, head of Jones Lang LaSalle Inc.'s retail leasing team, told The Associated Press.
Regarding survivors, Credit Suisse analyst Gary Balter believes Circuit City's demise will help Best Buy cement its position as the market leader. But Ms. Widlitz believes the big winner will be Wal-Mart because she believes Circuit City defectors were more likely to shop Wal-Mart for its bargains.
"This is perfect timing for them," Ms. Widlitz said.
The closing also puts a number of Americans out of work.
"It's a pretty bad way to start the New Year," a 25-year-old cashier at Circuit City's store on Fifth Ave. in Manhattan told Bloomberg News. "I'm undecided about staying in retail. I might go back to the Army."
Discussion Questions: How much of Circuit City's liquidation was caused by internal factors versus external factors? What implications does the exit of Circuit City have for consumer electronics retailing in the U.S.?