Circuit City announced last week that it was closing 155 of its stores across the U.S. This week they filed Chapter 11 bankruptcy. According to a court filing, CFO Bruce Besanko stated, “In large part, a Chapter 11 filing is due to three factors, all of which contributed to a liquidity crisis that prevented the company from completing its turnaround goals outside of formal proceedings: erosion of vendor confidence, decreased liquidity and a global economic crisis.”
It has been reported that some creditors were even requiring upfront payments before shipping goods. In fact, I know of at least one vendor that would not sell to them on a cash basis due to the concern that they would file bankruptcy due to the “claw back” provisions in some bankruptcy proceedings.
When I covered, “Terms of Sale, who owns what and when do I get paid, knowing how and what you are really selling for both contractually and practically” a week ago, I was expecting Circuit City to wait until after the holidays to declare bankruptcy. They had made the announcement to close about 20% of their stores, a tough decision, but one that left some degree of consumer confidence in the remaining locations. I was optimistic that they might be able to sell their way out.
But the weight of their liquidity issues, that of their vendors, most having their own issues with cash flow and credit lines, and contracted consumer spending rapidly deteriorated their ability to operate.
Having met with some of their buyers and merchandisers, I saw competence, methodical product reviews, and good business practices. I saw no wild bets on products, I was treated fairly as a vendor, and I was given reasonable milestones to gain product placement.
I don’t expect a government bail-out here like the banking industry, or the probable support of the automotive industry. Retailers are not key to international trade, nor could they be considered vital to national security.
Or maybe, they just don’t lobby very well….
“Using contract call centers for lead generation, sales, customer service and support, and disaster planning.”
“Small product and packaging changes can open new market opportunities with little additional cost.”
“Inventory from Raw Materials through the sales channel.”