Circuit City Being Short-Circuited?
A flurry of news came up this week on Circuit City and predictions that it would go bankrupt as early as the first quarter of 2009. According to Bradley B. Thomas, a research analyst at KeyBanc Capital Markets: "a Circuit City bankruptcy has become a question of ‘when’ rather than ‘if.’”
According to near duplicate reports by StreetInsider.com and the Associated Press,
Thomas said the current economic uncertainty is accelerating the
electronic chain's movement toward Chapter 11, and also lessening chances that it will emerge successfully after it gets there.
The KeyBanc analyst noted that the accelerating force would be vendors. If even one large vendor drops the chain, more will be certain to follow and the house of cards will fall. KeyBanc is raising its Best Buy status from Hold to Buy as a result, figuring that the competing chain store would clearly benefit from a Chapter 11 filing from rival Circuit City. He estimated that Best Buy’s earnings could rise by 37 cents per share in 2010 if Circuit City were to close 300 of its approximately 700 stores.
The future isn't exactly written in stone, but we've seen several bad choices made over the past couple years by Circuit City and our own experiences with the local store has only confirmed that the chain is in for a rough road ahead. When analysts start chiming in, however, one begins to wonder if they aren't part of the force driving the company towards bankruptcy. Negative press certainly won't help Circuit City come out of its financial woes. At this point they've got to make some pretty good decisions and secure firm financial footing in order to come back from this predicted brink.
In either case, the tide has already begun to turn for the worse and we'll just have to see how far and how fast any additional changes occur.
Recent Forum Posts:
I don't like the idea that Best Buy won't have any direct competition. There's the big boxes, which have crappy stuff and the high end stores that are too pricey for the general market but nobody else is a big player in the middle market.
The web is awesome, but it is getting harder to try merchandise out before buying.