Real Estate New Jersey - December 2008

Circuit Breaker
Available For Lease
400 Willow Tree Road, Leonia

Despite filing for Chapter 11 in early November, Circuit City officials say they plan to stay open for the holiday shopping season. Circuit City, the country’s second largest consumer electronics retailer, filed in a Virginia court, and even prior to the filing the Richmond, VA-based chain announced it was shuttering 155 stores—including several units in New Jersey—and that it would curtail store openings in response to its deteriorating liquidity position and the weak economy.

Circuit City is also struggling with tighter credit terms from vendors that, to combat their own tight financial situations, are requiring retailers to pay upfront before product is shipped. Circuit City continues to lose market share to other electronics retailers, notably arch rival Best Buy and discount giant Wal-Mart.

In addition to shutting doors, the retailer is also laying off about 17% of its workforce and plans to cut 700 more jobs as it faces the prospect of entering one of the slowest holiday shopping seasons in recent years.

Circuit City’s financial outlook has been bleak in recent years, with the company losing money in five out of the last six quarters. According to documents filed in court last month, Circuit City had $3.4 billion of assets and $2.32 billion of debt as of August 31 and has more than 100,000 creditors, including a host of manufacturers like Hewlett-Packard, Samsung Electronics, Sony, Toshiba and Zenith.

Additionally, Circuit City has negotiated a commitment for a $1.1 billion debtor-in-possession revolving credit facility to supplement its working capital. That DIP facility replaces Circuit City’s $1.3 billion asset-based credit facility.

Circuit City vice chairman, acting president and CEO James Marcum said in a statement that the filing should “give the company the opportunity to strengthen its balance sheet and create a more efficient expense structure.” Ultimately, he said, filing for bankruptcy would allow Circuit City to compete more effectively.