The economic downturn has taken its toll, as the major entertainment retailer will begin closing its doors in some locations this week. Who’s next?
Reports of Sony halting shipments of product already en-route to Circuit City stores and ordering the trucks to return to HQ last week was not a good sign. The other shoe finally dropped this week: Circuit City announced it will be closing 155 stores amidst a series of restructuring efforts to stem its hemorrhaging cash flow.
“Since late September, unprecedented events have occurred in the financial and consumer markets causing macroeconomic trends to worsen sharply. The weakened environment has resulted in a slowdown of consumer spending, further impacting our business as well as the business of our vendors,” said James A. Marcum, acting president and CEO of Circuit City Stores, in a press release Monday. “The combination of these trends has strained severely our working capital and liquidity, and so we are making a number of difficult, but necessary, decisions to address the company’s financial situation as quickly as possible.”
The company cites a weakened retail environment and waning sales among other reasons contributing to its financial and credit woes. According to the release, “certain of the company’s vendors” have implemented stricter payment terms – even requiring payment before shipping product in some cases. Sony isn’t mentioned by name, but this statement rings a certain bell. Though Circuit City is struggling to regain vendor support, the release notes the payment terms and credit availability is becoming “unmanageable.”
Starting tomorrow, the company will be closing 155 stores it feels are underperforming. The selected stores have experienced less net sales and lower profit margins on average. Altogether, the affected stores generated approximately $1.4 bullion in net sales for FY 2008. In addition to the closings, Circuit City will be reducing the number of new store openings immediately and into the foreseeable future.
“We deeply regret the impact today’s announcement will have on our associates, our guests and the communities where these stores are located,” said Marcum.
