Circuit City Store Closings: 155 Going, Going, Gone

Typical of most corporate announcements nowadays, Circuit City cites waning consumer confidence and the economy as an issue, as well as lack of credit availability for the company. But, there's more, and as Circuit City's press release says, these are the primary reasons for their issues with liquidity:

• Waning consumer confidence and a significantly weakened retail environment have impacted negatively the company's sales and gross profit margin rate to a greater degree than management had anticipated previously.

• Following the company's second quarter results announcement, the company's liquidity position and the sharply worsened overall economic environment led some of Circuit City's vendors to take restrictive actions with respect to payment terms and the credit they make available to the company. Additionally, the recent disruption in the financial markets has contributed to certain of the company's vendors experiencing insurmountable challenges with obtaining credit insurance for the company's purchases. As a result of this and other considerations, certain of the company's vendors have set more restrictive payment terms than in previous quarters, including in some cases requiring payment before shipment. Vendors also have limited the credit available to the company for purchases, including in some cases not providing customary increases in credit lines for holiday purchases. While management is working diligently to secure the support of its vendors and believes it has maintained good relationships with these important partners, the current mix of terms and credit availability is becoming unmanageable for the company.

• To date, the company has been unable to collect an income tax refund of approximately $80 million that the company believes it is owed from the federal government.

• Due primarily to the weakened economic environment and its potential impact on the timing of sales of the company's inventory and costs and expenses associated with such sales, a recent third-party appraisal conducted for the company's asset-based credit facility resulted in a reduction of the estimated net orderly liquidation value of the company's inventory. This valuation adjustment was made despite the mix of merchandise remaining consistent with the previous appraisal in November 2007. This reduction has led to a lower borrowing base and reduced availability for the current period compared with what the company had expected previously.

Circuit City store closings blamed on their tax return? Funny. On the other hand, the lack of credit could not come at a worse time for any retailer; the holiday shopping season will start soon and Circuit City will need to be able to access credit to restock popular items.

The Circuit City store closings list of 155 stores is here (.PDF). The store closures will result in Circuit City exiting 12 U.S. markets.

For you bargain hunters, liquidation sales will start at the listed stores on Wednesday, Nov. 5th, and those Circuit City stores involved will be closed on Nov. 4th in preparation for those sales.