Why Circuit City Files For Bankruptcy

The reason for the Circuit City Chapter 11 bankruptcy filing is attributed to a sluggish economy, fierce pricing wars with Best Buy and of course everyone's favorite nemesis previously blamed for doing away with mom and pop stores, Wal-Mart.

Yet this regurgitation of Circuit City news is too simplistic for the American stock owner who sees another company go belly up. Could Best Buy, Wal-Mart, and a slowing economy really topple a Fortune 500 company this easily?

Circuit City Bankruptcy Was a Matter Of "When" Not "If"

Circuit City third quarter results filed 12-21-07 reveal that Circuit City news has not been good for quite a while now -- well before the Wall Street meltdown hit the American economy with a vengeance. Instead, the third quarter results report reveals a loss "from continuing operations before income taxes of $140 million."

Circuit City's CEO Philip J. Schoonover blamed, among other things, "underestimation" of market realities and a decrease in the "sale of extended warranties" (from $103.3 million the year before to $67.4 million). He considered the losses to be "self-induced" and was nonetheless hopeful that they could be turned around.

Circuit City News Tells Of Former CEO Being Inducted In CE Hall of Fame

Not one to rain on the parade of award recipients, it nonetheless does cause pause that the Consumer Electronics Association issued a press release in April of 2008, announcing the induction of Richard Sharp -- former president, CEO, and chairman of Circuit City; spanning a time frame from 1984 to about 2006 -- into its hall of fame for making the "the consumer electronics industry a vibrant,dynamic [sic] and vital part of our nation and its economy."

Circuit City Chapter 11 Bankruptcy Affects National and International Venues

According to the third quarter report, Circuit City operated 668 super stores in addition to 13 specialized stores within the US, and 789 stores outside American borders in Canada. It is uncertain how a company that commanded a striking share of the national and international electronics market could fail to see the writing on the wall.

Then again, if the 11-10-08 letter written to shareholders is any indication, it is not a failure to see the problems on the horizon, but instead a failure to act decisively and immediately.

Sources:

http://www.marketwatch.com/news/story/circuit-city-files-chapter-11/story.aspx?guid=%7BD9CB8DE9-943F-4C3F-A007-24081B471F20%7D&dist=msr_5; http://newsroom.circuitcity.com/releasedetail.cfm?ReleaseID=283007; http://www.ce.org/Press/CurrentNews/press_release_detail.asp?id=11485; http://files.shareholder.com/downloads/CC/461660694x0x248170/252ADBF7-03CC-4D9E-A5FF-EA3822D21B06/C1-Letter%20to%20Guests%20FINAL.pdfhttp://www.marketwatch.com/news/story/circuit-city-files-chapter-11/story.aspx?guid=%7BD9CB8DE9-943F-4C3F-A007-24081B471F20%7D&dist=msr_5http://newsroom.circuitcity.com/releasedetail.cfm?ReleaseID=283007http://files.shareholder.com/downloads/CC/461660694x0x248170/252ADBF7-03CC-4D9E-A5FF-EA3822D21B06/C1-Letter%20to%20Guests%20FINAL.pdf