Circuit City to Stay Open in Bankruptcy - Literature review Example

Number Circuit to Stay Open in Bankruptcy Beleaguered No. 2 electronics retailer urges budget-conscious consumers not to shun its stores for holiday gifts. By Parija B. Kavilanz This article basically tries to show the attempts that the Circuit City management took to try and keep the business afloat when it was sinking. Whether the attempts that were made helped the state of affairs or not, was another question all together. The company had taken a major hit following the economic downturn and a string of managerial blunders did not make the situation any better either. Most of Circuit City’s blunders were of their own making since the retailer’s competitive landscape had become more formidable than before as Best Buy, its principal rival, continued to improve its product offerings and service. The company had also kicked its own teeth by announcing the laying off of more than 3,000 of its highest-paid sales persons, replacing them with lower-paid sales staff. This was a source of severe backlash as people were skeptical of buying expensive products from less knowledgeable sales staff. Years of strategic blunders and poor financial performance led to the company’s executives first announcing the closure of 155 of its 566 operating stores before filing for bankruptcy protection. By so doing Circuit City would cut about 17% of its 40,000 staff. The company tried as much as possible to continue business as normal during the bankruptcy period by: honoring customer programs, accepting credit cards and honoring warranty plans. However despite all these efforts, there were still doubts that the company could still attract shoppers after filing for bankruptcy. This was because of the obvious going concern question; would the company still be around in the future? Circuit City to Shut Down Court approves bankrupt electronics retailers motion to liquidate and close its remaining 567 stores. By Parija B. Kavilanz This article shows the outcome of the negotiations of Circuit City and its creditors and lenders; liquidation, following a stalemate in these discussions. The article gives a picture of the events that unfolded following the decision to liquidate all Circuit City’s assets. All the efforts that the company had undertook to save it from going under had all been in vain as Circuit City was forced to close shop. The liquidation process was from then on, all systems go! A sale of all its products was to be done, the call center closed and employees were to receive a 60-day notice of termination. Those employees who had been laid off earlier would be compensated for the 60-day period and those who remained to assist in liquidation, would be given pay and benefits. All these had come down due to a string of managerial blunders and an economic recession that worsened the situation. But were there any more straws that the company could still hold on? A few firms had declared their interest in buying Circuit City out of bankruptcy even though the market had changed and half of electronic sales had moved online. However, if one of its bidders was to purchase and primarily restructure the company as an online business, this would work since it would eliminate overhead costs, have fewer physical stores and have almost $1 billion online business. All in all, it was a case of hoping and waiting to see what would eventually happen to the once giant electronic retailer. Analysis of both Articles These two articles together give a reader the story of Circuit City from how the business started failing, how it filed for bankruptcy and eventually how the company liquidated its assets. The first article tells us how the business started to decline and the managerial mistakes that led to this. It also continues to show how these mistakes led to the company filing for bankruptcy, closure of multiple stores and the laying off of thousands of employees. The filing for bankruptcy had its own repercussions to the business of Circuit City and these are also stated in the article. The second article gives us the end story of Circuit City; how it was forced into liquidation. Since the company could not reach an agreement with its creditors it was forced to close shop so as to pay their debts. The whole process of liquidation is written in the article as the company sold off its products at huge discounts, closed hundreds of stores and laid off most of its employees. There was still hope that the company would get a buyer to pull it out of bankruptcy but that could only be speculated. These two articles give a flow of the proceedings that took place right before the closure of Circuit City and they give a reader an understanding of what exactly happened for it to result to liquidation. Circuit City Seeks Bankruptcy Protection By Stephanie Rosenbloom This article gives the events that unfolded prior to Circuit City filing for bankruptcy. For the one time strongest retailer in the nation, poor strategic decisions and a dismal economy were its downfall. This had led to it filing for bankruptcy would reorganize the company and win back vendors worried of their payments. By so doing a $1.1 billion line of credit would help the company buy more goods for the important holiday season. Circuit City had undertaken a series of missteps in the 1990s that happened to be its primary undoing. The company signed cheap real estate leases in inferior locations that had too much space and laid off thousands of its most experienced salesmen to save money. Its principal archrival, Best Buy, on the other hand secured better real estate, offered better service and adapted faster to the ever changing market place. All these mistakes had led to the company closing 155 stores, losing more than 90 percent of their share value and a rapid fall in their sales. Circuit City had given up a huge chunk of its market share to its competitors and the fact that it had downsized its work force just before a busy holiday season, signaled a dire financial situation. Therefore question was for how much longer would it survive? Amid all these there was hope among the company’s executives that the restructuring of the business would strengthen the financial status of the company, create a better expense structure and ultimately position the company to compete more effectively. Circuit City files for bankruptcy protection By Karen Jacobs This is the story of Circuit City filing for bankruptcy protection just days to the start of the busy holiday season and after announcing the closure of 155 stores thereby cutting 17 percent of its workforce. This was part of its restructuring process where the company intended to downsize, reorganize the brand and exit costly leases, all in the hope that it would secure financing to continue its turnaround. However, the company could face an uphill struggle according to analysts, since credit was tight and consumer spending had plummeted due to the macroeconomic crisis in the world. Circuit City had laid off 1,300 workers and for the previous two years prior to its filing for bankruptcy, it had recorded major losses and shares traded at less than 50 cents. On filing for the bankruptcy protection, Circuit City had $3.4 billion of assets and $2.32 billion of debt and more than 100,000 creditors. The company had also arranged for debtor-in-possession financing of $1.1 billion, to enable the company continue its operations. Hewlett-Packard Co, Samsung Electronics Co and Sony Corp were among the company’s largest unsecured creditors on filing for bankruptcy. Analysis of both Articles These two articles are similar as they tackle the same issue; Circuit City’s filing for bankruptcy protection. Both of them state how the company filed for bankruptcy, the circumstances that led to this filing and the attempts of the management to restructure the company. The articles are related since they both seek to inform the reader on how and why Circuit City filed for bankruptcy protection. While reading both articles, one gets the sense that the company’s misfortunes were because of their own undoing, a case that is clearly outlined in both articles. The closure of stores and reduction in the workforce is also written in both articles, as the reader is brought to the understanding of how Circuit City began liquidating some of its stores. Circuit City to Close Remaining 567 Stores in U.S. The failure of the No. 2 electronics retailer means the loss of 34,000 jobs. The news comes as firms including Hertz, ConocoPhillips and AMD announce big job cuts. This article is about the state of affairs of the economic meltdown experienced in the United States of America. The recession was marred by a series of layoffs, bank losses and store closings. Many firms such as, Hertz Global Holdings Inc, Conoco Phillips, Advanced Micro Devices Inc, all announced reductions in their workforce as other companies were soon to follow suit. Two of the nation’s largest banks, Bank of America Corp and Citigroup Inc, had lost money during this period. The economy was also affected by the collapsing of home prices, credit crunch and a decline in the stock market. Circuit City had fallen prey to the economic turmoil in the country. The company collapsed amid all these factors and the business was to be liquidated, leaving only its Canadian operations to continue. Circuit City had faced stiff competition from Best Buy, Wal-Mart and online retailers like Amazon. Even though the company was confident that it would successfully go through the bankruptcy filing, there was still doubt from skeptics that the environment was too harsh for the company to survive for much longer. Why Circuit City Busted, While Best Buy Boomed By Anita Hamilton This article basically illustrates the mistakes that Circuit City undertook before its eventual demise and how its archrival, Best Buy, continued to thrive on the contrary. Circuit City’s failure was not as a result of the downturn in the economy only; its principal failure was in its bad management over the course of the years. Despite its incredible growth and success over the 1980s and 1990s, the company failed to adapt with the changing retail-electronics industry. This gave the upper hand to Best Buy who evolved with the rapidly changing market. Circuit City also failed to secure prime real estate, stopped selling appliances, did not move aggressively into gaming and to top it all off, neglected to improve its Web presence. Basic inventory management was also another problem since the company was at some point unable to move its inventory, leaving it paralyzed unable to buy fresh products or pay off its existing debts. To the consumers, Circuit City’s customer service was poor following the laying off of its highest paid experienced salesmen and replacing them with cheaper and inexperienced workers. The New York Stock Exchange even halted trading when the stock hit 10 cents a share. All these factors led to the inevitable filing for bankruptcy. The company was given the permission to borrow $1.1 billion to buy new inventory and pay workers. The long term outlook however remained bleak. Analysis of both Articles These two articles together give an illustration as to what happened to Circuit City. The second article gives a breakdown of all the mistakes that the executives of the company took as they run the company to the ground. The first article on the other hand shows the economic environment prior to Circuit City’s demise and how the economic meltdown had affected many companies, banks and caused the layoff of thousands of employees. Therefore these two articles are related in a way since one shows how poor strategic decisions led to the downfall of the business whereas the other shows how the dire economic condition in the country was the nailing on the head of Circuit City’s coffin. Conclusion Of the six articles, the article titled “Why Circuit City Busted, While Best Buy Boomed” brings most to the table. This is because it gives us a clear picture of how Circuit City was run down by its management and the series of poor strategic plans that they undertook. This article gives the most of all articles on how the company was operated and it gives us an insight into the downturn of the business from its position as one of the largest retailers in the nation. It illustrates how the company stuck to its beliefs and did not change its culture and values in order to effectively compete in the rapidly changing electronic-retail industry. Works Cited Hamilton, Anita. “Why Circuit City Busted, While Best Buy Boomed” Web. Karen, Jacobs. “Circuit City files for bankruptcy protection.” Web. Kavilanz, Parija. “Circuit City to stay open in bankruptcy.” CNNMoney.com. Web. Kavilanz, Parija. “Circuit City to shut down.” CNNMoney.com. Web. Rosenbloom, Stephanie. “Circuit City Seeks Bankruptcy Protection.” Web. Zimmerman, M. Chang, A. “Circuit City to close remaining 567 stores in U.S.” Web. Read More