CIRCUIT CITY — A Brief History in Time

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Circuit City: A Brief History in Time

By Alan Wolf
-TWICE, 1/26/2009
(This Week in Consumer Electronics)

Richmond, VA. — Once upon a time, before the distractions of CarMax and Divx, before it de-commissioned its sales force, before it dropped appliances, before Best Buy went corporate, before it lost its way — Circuit City was the CE specialty chain supreme.

But bad lease deals, outdated locations and aging infrastructure eventually took their toll. All boats rise with the tide, but when flat-panel prices plummeted and the economy went south, so too did Circuit's fortunes. Firing the company's highest paid but most experienced sales clerks saved money in the short term, but only hastened the inevitable.

What follows is a brief history of the iconic chain that created the big-box CE format and brought high-technology to the masses.

1949: Samuel S. Wurtzel opens the first Wards retail store in Richmond, Va.

1960: Wards expands operations nationally via licensed departments in discount stores.

1969: Begins major expansion by buying up local chains and discount stores.

1970: Wurtzel, now chairman, names son Alan president. Partner Abraham Hecht retires.

1974: Begins closing licensed departments and opens The Wards Loading Dock, a 40,000-square-foot, retail warehouse-showroom for A/V and majaps and the precursor to Circuit City.

1977: Opens new-concept "Circuit City" showrooms in Washington D.C. The 6,000-square-foot to 7,000-square-foot stores feature top A/V brands, in-store service departments, convenient pick-up areas and knowledgeable sales staff.

1982: Richard Sharp joins as executive VP.

1984: The $250 million company changes its name to Circuit City Stores and is traded on the New York Stock Exchange. Alan Wurtzel succeeds Sam as chairman and Sharp is named president.

1985: Partners Wurtzel and Hecht die.

1986: Sharp named CEO.

1987: Alan McCollough joins company as general manager of corporate operations. Sales exceed $1 billion.

1990: Sales hit $2 billion; company opens own bank to handle private-label credit card program.

1993: Begins testing CarMax used-car superstore concept.

1994: Sharp named chairman.

1997: Alan McCollough named president/COO.

1998: Company launches Digital Video Express (DIVX), a proprietary movie-rental system.

1999: Company drops DIVX, launches CircuitCity.com. Total annual sales now exceed $12 billion.

2000: McCollough succeeds Sharp as CEO; exits appliances.

2002: McCollough succeeds Sharp as chairman; spins off CarMax.

2003: Company ends commissioned sales.

2004: Company buys Canadian electronics chain InterTAN. Tops, Sony and Best Buy veteran Phil Schoonover joins as executive VP/chief merchandising officer. Best Buy prepares for national rollout of customer centricity strategy, continues aggressive build-out of store base.

2005: Schoonover named president.

2006: Schoonover succeeds McCollough as chairman/CEO. Panasonic 42-inch plasma falls below $1,000 on Black Friday, setting off period of margin-crushing price promotions.

2007: Company restructures to cut costs, lays off 3,400 most experienced and highest paid sales associates; looks to unload Canadian business.

2008: Investor Mark Wattles forces Schoonover out following massive losses; Blockbuster passes on possible buyout; company files for Chapter 11 protection; shuts 155 stores.

2009: Company fails to secure new financing or a buyer, and begins final liquidation.

UPDATE: Circuit City's four liquidators have until March 31 to sell off all merchandise and fixtures in the chain's distribution centers and 567 remaining stores (approximately $1.3 billion in inventory.)

The close-out specialists include Great American Group, Hudson Capital Partners, SB Capital Group and Tiger Capital Group.

Circuit City had been in negotiations with two potential buyers, identified as Mexican investor Ricardo Salinas Pliego and Golden Gate Capital, a private equity firm, but neither was able to raise sufficient funding for the acquisition. A key sticking point, according to courtroom accounts by Bloomberg News, was lenders' demand that manufacturers ship Circuit merchandise on credit.

Given more time to negotitate a sale, the retailer could have reorganized as a smaller chain, a Circuit City attorney told the court. But the creditors committee, which includes key vendors, called off the negotiations after the company failed to provide any evidence that a sale was possible, Bloomberg reported.

The liquidators have been authorized to retain store employees as needed and provide retention bonuses of up to 10 percent, court documents show. They are also permitted to sell home-theater and 12-volt installation services up to 10 days before a store location closes. Corporate employees, numbering about 1,500, will wind down headquarters operations over the next two months and will be paid during that time, although a skeleton crew will likely remain for the additional one to two years it could take to completely shut down the business.

By Jan. 17 Circuit City's e-commerce site had come down, replaced with a notice thanking "all of the customers who have shopped with us over the past 60 years… Due to challenges to our business and the continued bleak economic environment, Circuit City is going out of business and the company's assets will be liquidated to pay off creditors."

According to the notice, gift cards will be honored at full value and returns will be accepted on purchases made prior to Jan. 16. Repair work already underway will be completed, but no additional jobs will be accepted. In addition, the liquidators can continue to sell extended warranties, which are administered and backed by Circuit City's longtime provider Assurant Solutions, although all home and car installation services have been suspended.

Circuit City is still looking to sell its 765 Canadian stores as a going concern, receiving formal bids for the former RadioShack franchise as of Jan. 23.

The retailer will also likely sell its online operation, its Firedog service business and, ultimately, its brand, which will keep the company alive in name only.

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(earlier report below)

Mexican Billionaire Builds 28% Stake In Circuit City

By Alan Wolf
-TWICE, 11/18/2008
(This Week in Consumer Electronics)

Mexico City — Mexican tycoon Ricardo Salinas Pliego has snatched up more than 47 million shares of Circuit City, making him the company´s largest shareholder.

Pliego, a billionaire whose conglomerate Grupo Salinas encompasses retailing, banking, TV broadcasting and wireless services, acquired more than 30 million shares over three days following Circuit City´s bankruptcy filing last week. He paid an average of 24 cents per share, Securities and Exchange Commission documents show.

Pliego now controls nearly 28 percent of Circuit City stock. By comparison, activist investor Mark Wattles, who successfully agitated for change on Circuit City´s board, holds a 6.5 percent stake in the company.

Forbes pegs the Pliego family as the world´s 154th wealthiest, with a net worth of $6.3 billion. Their holdings include Elektra, a leading Latin American CE and appliance chain that carries its own line of Elektra brand consumer electronics.

Another Mexican tycoon, former CompUSA owner Carlos Slim Helu, offered to buy Circuit City for $8 a share in 2003.

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(earlier report below)

Circuit City owes studios more than $56 million
(Samsung, Sony are among retailer's largest creditors)

By Danny King
- Video Business, 11/11/2008

NOV. 11 | UPDATE: Circuit City filed for Chapter 11 bankruptcy protection last week (see further below), owing movie studios and packaged-media distributors about $56 million for unpaid DVDs and likely several times that figure to electronics component makers that make DVD players and flat-screen TVs.

Circuit City owes the five largest studio DVD distributors a combined $37 million and is in debt to distributors Alliance Entertainment and Navarre Corp., for $15.8 million and $2.56 million, respectively, the retailer said in the bankruptcy filing in Virginia's eastern district court. The five studios accounted for about 70% of year-to-date U.S. spending on DVD sales and rentals through September, according to data compiled by Video Business and Rentrak.

Among the studios, Paramount Home Entertainment is owed the most, at $13.7 million, while Warner Home Video is owed $10.7 million. 20th Century Fox Home Entertainment is owed $5.8 million, and Walt Disney Studios Home Entertainment and Sony Pictures Home Entertainment are each owed $3.7 million.

The bankruptcy filing by the No. 2 U.S. electronics retailer behind Best Buy is likely to pose further challenges for studios looking to defy the U.S. economic downturn by selling more DVDs. Through September, consumer spending on DVD and Blu-ray purchases fell 3.5% to $8.6 billion, according to VB and Rentrak.

"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 Nov. 3, 2008, further impairing the company's ability to conduct business and provide service to its customers," Circuit City said in a statement.

Spokespeople for Sony, Warner and Disney declined to comment on the filing.

Circuit City's debt to DVD producers, however, is likely to be dwarfed by the amount it owes DVD player and TV makers. After Hewlett-Packard, Circuit City's next-largest creditors are Samsung and Sony, which both make DVD players and account for almost a third of the flat-screen TVs shipped to North America during the third quarter, according to NPD Group's DisplaySearch unit.

Circuit City, which listed $3.4 billion in assets and $2.32 billion in liabilities, owes Samsung $115.9 million and Sony $60 million, according to yesterday's filing. Zenith, Toshiba, Panasonic and Mitsubishi also are among companies owed more than $10 million.

Circuit City has struggled as Best Buy has lengthened its lead over the 59-year-old company, while Internet retailers such as Amazon.com have taken a progressively larger share of the DVD and consumer electronics market.

Last week, Circuit City said it would close about 20% of its approximately 700 U.S. stores, cutting 17% of its workforce in the process.

In September, the company said its fiscal second-quarter loss almost quadrupled as sales declines in rear-projection TVs, DVD players, DVDs and CDs more than offset a slight increase in revenue from flat-panel TVs. The company's results have suffered additionally from a consumer-spending pullback, which caused Best Buy this week to lower its fiscal 2009 earnings forecast to $2.90 a share from as much as $3.40 a share it forecast in September after its same-store sales dropped 7.6% last month.

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(first report below)

Closing 155 retail stores and announcing plans of 6,800 store worker job cuts was not enough to save the chain.

Today, the Virginia-based company along with 17 affiliates petitioned for Chapter 11 protection in Richmond.

"The lenders have agreed to loan Circuit City $1.1 billion to keep the retailer's doors open through the holiday season. The amount available under the bankruptcy loan will be cut to $900 million on Dec. 29." wrote Wall Street Journal.

Best Buy may be interested in taking over some stores but details are few at this stage.

Sadly, another company bites the dust.

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