- The Washington Times - Tuesday, November 11, 2008

Circuit City Stores Inc. filed for bankruptcy protection Monday to preserve its inventory of consumer electronics as it prepares for a difficult holiday shopping season ahead.

The Richmond retailer said it will try to win support from suppliers for a reorganization plan that may allow it to exit court protection by June.

Circuit City will attempt to reorganize by shedding stores and finding a buyer for a slimmed-down version of the chain, or by remaining as a stand-alone retailer, lawyers for the company told U.S. Bankruptcy Court Judge Kevin Huennekens in Richmond. The company said it plans to file an outline of a plan by March 1.

The company’s announcement last week that it would close 20 percent of its stores and lay off up to 7,300 employees did not allay the fears of investors and vendors as hoped.

“It basically made vendors who were already nervous and skittish … more nervous and skittish,” said Anthony Chukumba, senior analyst for FTN Midwest Securities.

With many vendors reluctant to sell to the troubled retailer, Circuit City decided to file for Chapter 11 bankruptcy protection to make sure its stores’ shelves remained stocked through the holidays. Circuit City also announced another 700 layoffs in its store-support department.

In court documents, Chief Financial Officer Bruce H. Besanko cited three main reasons for the filing: erosion of vendor confidence, decreased liquidity and the global economic crisis.

“Without immediate relief, the company is concerned that it will not receive goods for Black Friday and the upcoming holiday season, which could cause irreparable harm to the company and its stakeholders,” Mr. Besanko said in the company’s bankruptcy filing.

Circuit City won court approval Monday to borrow as much $1.1 billion to finance operations while it restructures. The retailer said the loan was needed to stock merchandise and pay employees.

Like other analysts, Mr. Chukumba said he was surprised that Circuit City announced the store closings without announcing that it would be filing for bankruptcy, which many viewed as being inevitable.

The company’s miscalculation of investor and consumer reaction to the store closing plan was just the latest in a string of blunders, Mr. Chukumba said.

“They made a series of missteps in the past few years,” he said.

He predicted that the initial store closings would not be the last, and that the company would reassess after the holiday shopping season, most likely getting rid of its lowest-performing locations.

“There is a glimmer of hope for them,” Mr. Chukumba said, though with top competitor Best Buy Co. sensing blood in the water, it is unlikely that the nation’s biggest consumer electronics retailer will allow the ailing Circuit City to get back on its feet.

Circuit City shares fell 14 cents, or about 56 percent, to 11 cents Monday before over-the-counter trading was halted.

• This article is based in part on wire service reports.

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