Circuit City Stores Inc., the 59-year-old seller of televisions and computers, filed for bankruptcy protection Monday, becoming the biggest retail casualty of the slowing U.S. economy and frozen credit markets.
The chain sought Chapter 11 protection after suppliers that were concerned about declining sales cut off credit and demanded up-front cash for shipments. The retailer, which has nearly 1,500 U.S. and Canadian stores, aims to win support from suppliers for a reorganization plan that may allow it to exit court protection by June, its lawyers told a judge Monday.
“It's all about the vendors,” said Paul Traub, a bankruptcy attorney with Dreier LLP, who isn't involved in the case. “If the vendors want to support this business, it may survive.”
Circuit City, the biggest electronics retailer in the U.S. until the mid-1990s, is losing market share to Best Buy Co. and Wal-Mart Stores Inc., while online retailers such as Amazon.com Inc. undercut its prices. The company owes $119million to Hewlett-Packard Co., the world's largest maker of personal computers, and $116 million to Samsung Electronics Co., the top maker of flat-panel displays, according to a filing.
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Vendor concern that Circuit City wouldn't be able to pay its bills “escalated considerably” in the past week, the company said in its filing. It will attempt to reorganize either by shedding stores and finding a buyer for a slimmed-down version of itself, or by remaining as a stand-alone retailer, lawyers told U.S. Bankruptcy Court Judge Kevin Huennekens in Richmond, Va., where it's based. The company plans to stay in business while restructuring.
The company, founded in 1949 when Samuel Wurtzel opened the city's first retail television store, has lost more than $5 billion in stock-market value in two years. Circuit City shares fell 14 cents to 11 cents before the start of trading on the New York Stock Exchange.
A week earlier, Circuit City said it would trim about 20 percent of its 43,000-person workforce as it closes about a fifth of its U.S. stores, including one in Charlotte's University City area. The company announced another 700 job cuts in its store-support department Monday.
The company said Charlotte-based Bank of America Corp. arranged $1.1 billion in bankruptcy financing to replace a $1.3 billion line of credit.