Circuit City, the nation's second largest retailer of consumer electronics, filed bankruptcy to allow it access to special debtor-in-possession (DIP) loans. This allowed it working capital to pay vendors, many of whom had threatened to cut off shipments during the important Christmas shopping season. Like many of us, Circuit City has been hit with cash flow problems as its asset value has fallen and income has dropped. Here are some money-saving tips to help you avoid its fate.
As a way to save cash, Circuit City will close 150 of its 700 U.S. stores, and lay off 7,300 workers by the end of the year. This will actually help the chain, allowing it to get out of leases for stores in poor performing locations. The chain will also cut back on new store openings, renegotiate leases, and work with vendors like Sony and Hewlett-Packard who are tightening their credit terms. (Source: AP, Circuit City Files Bankruptcy, November 11, 2008)
What It Means to You
Like Circuit City, many of us are also living with lower incomes and asset values, such as home equity and stock portfolios. Here are some ways to save cash and avoid bankruptcy.
Circuit City is not “like many of us”. Their financial failure is the result of some horrendously bad decisions, like firing all of their sales force above a certain pay grade (i.e. firing all the long-term, experienced personnel).
Hi Peter,
I did not know that…thanks for the info. That is like so many corporations I’m aware of, and it always ends badly for them. Why do these decision-makers think that laying off highly skilled, successful sales people will help their profitability? Increased revenue will always be better than decreased costs.
I think what we will be seeing is that companies that don’t use ethical practices will be winnowed out.
Kimberly
Hi Kimberly,
I’d like to think so, but the way things are going, I expect they’ll just have to wait for the government to come along and offer them some more of our money.
Hi Peter,
The government won’t bail out all the businesses…just the ones who, if they did fail, would pretty much destroy our economic system. That would include AIG and Fannie and Freddie, but not Circuit City or even Best Buy.
Kimberly
I have to say, I’m not surprised that Circuit City is in trouble. My husband and I went into a few different Circuit City stores in an attempt to purchase a car stereo. In every one, the music was extremely loud, the staff was inattentive, and when someone did talk to us they tried to sell us extra parts/purchases we didn’t need. We finally went to Best Buy and got what we needed in one trip. I vowed never to go to Circuit City again, and I have no sympathy for the company (though I am sorry for CC employees).
It sounds like this recession will winnow out businesses that didn’t have good policies, sort of an economic Darwinism.
Kimberly