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Troubled U.S. retailer Circuit City Stores, Inc. has filed for Chapter 11 bankruptcy protection in order to help restructure its struggling retail business. This also includes the retailer's Canadian stores, which operate under The Source by Circuit City banner. These stores are seeking protection under the Creditors Arrangement Act (CCAA) in Canada.
Despite the drastic move, Circuit City says that it plans to continue operations "without interruption" while management focuses on a restructuring plan. This would require the Bankruptcy Court to make wage and salary payments, as well as continue to honour things like employee benefits, customer return programs, and gift cards. The retailer has also negotiated a commitment for a US$1.1 billion debtor-in-possession (DIP) revolving credit facility, replacing its existing asset-based credit facility, to supplement its working capital. Using this, Circuit City will be able to pay vendors and other business partners for goods and services received after the filing.
"Vendor concerns about the company's liquidity and ability to pay for its purchases in this difficult economic climate have escalated considerably since the company provided a liquidity update on November 3, 2008, further impairing the company's ability to conduct business and provide service to its customers," explains the company in a prepared announcement. "Faced with the need to secure ongoing vendor support and to ensure adequate merchandise flow to stores during the important holiday season, the company has determined that it would be in the best interest of its stakeholders to file for reorganization relief under Chapter 11."
Just last week, Circuit City announced major steps in helping to bring it back to profitability: the closing of 155 stores, and the reduction of the head office work force by nearly 700 positions. However, it obviously wasn't enough to address the unpleasant financial situation.
Circuit City now has approx. 566 stores across the U.S., and plans to return to profitability in the future.
"The decision to restructure the business through a Chapter 11 filing should provide us with the opportunity to strengthen our balance sheet, create a more efficient expense structure and ultimately position the company to compete more effectively," assures James A. Marcum, Vice Chairman and Acting President and CEO. "We appreciate the support we have received from our lenders in the midst of such a tight credit market. With this support, we believe we have the opportunity to leverage our market position and the strength of our brand to restore Circuit City to solid financial footing."
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21 comments »
Brandon December 18, 2008, 00:00 am
I am a manager at the source by cc in regina saskatchewan. I have been with the company since march 2006. The company is owned and operated by Intertan inwhich is owned by Circuit City. Ever since i stared we have been a profitable company and that right from the "source", the company. In march 2007 we closed about 30 stores canada wide due to there were not profitable locations. Everyone thought we were closing then. People jump to conclusions all the time and most of the time its faulse info. When we closed those 30 stores we opened 50, just in different locals. Now circuit city is filled for bankrupty protection. This means they are getting a huge line of credit to pay the creditors back so they will sell to them again. This doesnt mean there closing in anyway. This means theres a hault to progress any larger. They may still close but no one will know till Jan or Feb. The source By CC will be sold off to the highest bidder in that case. It happened to Radio shack 4 years ago or so, just they sold us "the source by CC" before they went under. As of dec 17th there were 18 different groups/businesses bidding on the the source by cc chain. Including our just stepped down president Ron Cuthbertson. He beleives that were so well off hes paying money from his own pocket to do so. He had to step down due to conflict of interest in the courts. So in my opinion circuit city is done but the source by cc will remain open and prob be named the source after this summer!
ac December 18, 2008, 00:00 am
Why would anyone buy from the source by cc? Bestbuy/Futureshop, London Drugs have 30 days price guarantee, 14 days refund even if the item are opened and much more selections of items.
Darcy December 03, 2008, 00:00 am
It's starting... The creditors will soon get their day in court. Check out the link. http://homemediamagazine.com/news/samsung-wants-circuit-city-return-74m-product-13992 If this proceeds, it will turn into a bloodbath.... Everybody's gonna want their product back, and if this petition wins, it will set the precedence. We'll see a domino effect throughout the entire industry.
Morris November 27, 2008, 00:00 am
I have to wonder if the lawyers for the creditors are aware that the company is still building stores? There are currently renovations and building permits underway to open several new locations in the west... These stores were put on a list several months ago, in order to be considered "existing locations". In this way, InterTan could continue to build them as if they were already open. It is ironic that the government will allow them protection from the businesses they alreay owe in order to continue to expand a failing proposition. We as Canadian taxpayers are paying for it.
pops November 27, 2008, 00:00 am
It wasn't that long ago that CC was rated as one of the best 10 companies in the US. When employees stop beleiving in the company they work for, the end is nearer than management thinks. I was a franchise manager for RadioShack for almost 30 years and saw the writing on the wall. I got out while the going was still fairly good and am happier for it. Too bad management didn't look after its employees concerns as they may have still been a viable operation.
Lee November 26, 2008, 00:00 am
as an owner of a Source by CC franchise, I find this all rather amusing. In the end, life on earth will probably go on, but it's too bad this is upsetting so many people. I will always be paid what I'm worth, even if that is nothing unless I am prepared to face some healthy competition. I am proud to be Canadian and very ashamed of what we have allowed our government and the people who control them to do to our banking and judicial systems
JayT November 21, 2008, 00:00 am
I'm sorry but Randy doesn't know what he's talking about.
Roger Wyatt November 16, 2008, 00:00 am
I am optimistic that the Source will survive in one form or another. Circuit City on the other hand.......
Roger Wyatt November 15, 2008, 00:00 am
wouldn't it be ironic if Radio Shack jumps back into Canada hrough The Source
Bill November 15, 2008, 00:00 am
I was a Radio Shack manager before Circuit City bought them out in Canada. going from a part store to a toy store didn't help. The markups were extremely high and the competition always sold for cheaper. but the US economy has to be the culprit
Rick November 12, 2008, 00:00 am
Can't stand all these positive comments. To those who've commented on "junk" from China; what isn't made in China these days? the market puts on the shelf what it perceives that the consumer will buy. consumers buy on price, not quality. Oh, they say they want quality but wont pay for it. Anyway this is not of the Source by C.C.'s doing and I don't see why it couldn't pull out of it. Rob: welcome to the wonderful world of consumer electronics; 20 yrs ago I could make 30 points on a $3M to $5M computer system, now we make five point or even maybe just 2 or 3. That's not C.C.'s fault, the Source's fault, or anyone else's "fault". It's the way that things have gone; everything is based on volume now. You have to sell value-added services and merchandise to make up the difference. Whether you're selling a PC, a TV or a cell phone, same sh*t different pile. If you didn't know this already, then stay out of electronics retail.
Darcy November 12, 2008, 00:00 am
At this point, after over three complete fiscal years of trying, TSCC has managed NO PROFITABLE YEARS... (I grant you, they had a profitable last quarter, but if you compare the first six months of this year vs. last year at this time, they are about four million dollars behind the pace...) I might add that since FY '06, their yearly losses have totalled more than $120M CAD - This information can be seen at... http://investor.circuitcity.com/results.cfm Whereas, prior to the CC takeover in '04, as RS Canada, they had made an average of $15M CAD per year. (For this information you will need to search for ITN on the TSE from years '04 and earlier...) Randy in the above post should check his own facts... Perhaps he is not aware that the chain is now over 200 stores smaller than it was when CC purchased Intertan. The Source will fail when CC goes down. They share the same credit facility, and seeing as CC (US) owns very little real estate, one of the only assets of significance they've got, is the real estate that Intertan's Barrie warehouse sits on. The Source is tied to CC. CC is nearly dead. The asset in Barrie is held as collateral on CC's new loan. (Inventory and other things included, of course.) When one considers that at their BK hearing where new financing was put on the table, (this AM, I believe) CC was hovering at around $898M USD in debt, with only a $1.1B USD loan in place. That provides them with basically two hundred million US to see them through Christmas.... We in Canada have to realize that the significance of 155 store closures in the US is the equivalent of them closing all of Intertan 2.5 times over. Do you honestly think that the big US company is concerned with what happens to the little brother in Canada? Intertan's entire FY amounts to about two and a half, or maybe three weeks, of CC's operations down south. Face it, Intertan has been up for sale for over 18 months, and no takers. It's simply a fact that in the most recent quarter that got them in the deepest of hot water, The Source by CC is a SMALLER FAILURE than CC has become. Please check my facts. I am not a CPA or anything, but I can read. CC owes more to HP & Samsung in US right now, than they paid for Intertan... When those suppliers wake up and want their money, the only way that CC can raise any cash of significance, is to sell the Barrie real estate. Read the filing on the canadian operations. The reason given for the filing is that the Bank of America wants control over ALL of CC's assets... See the article below... http://www.marketwatch.com/news/story/InterTAN-Canada-File-Creditor-Protection/story.aspx?guid=%7B24197AC2-5F52-4EF9-9B7F-142DE431F4DE%7D TSCC will fail because they didn't get in done in the first few years as they promised they could. CC now has troubles of their own and can't afford to prop them up anymore.
Ryck November 12, 2008, 00:00 am
Darcy, Good post. What happens, happens. Although it's not the best of times for it, if and when anything happens to TSCC it will be dealt with then. Speaking with an associate who's a dealer, he said that he already has secondary suppliers ready to step up, and other chains/franchisers have approached him in the past. It's just a lousy time of the year for this stuff to happen, particularly in retail.
R Acett November 11, 2008, 00:00 am
The Source, did not sell quality, apart for some brands they have. They private brand products were not that great at all. Junk from China!
samm November 11, 2008, 00:00 am
It seems that there are too many stores offering the same Chinese electronic junk . I was wondering what would happen if we asked for Made in Canada products - boy, that would make the store manager laugh!
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