The Wall Street Journal reports that electronics retailer Circuit City is facing a very tough decision: either close 150 stores, or file for bankruptcy protection.
A decision to declare bankruptcy could have a major negative effect on the company, potentially eroding consumer confidence in the retailer and raising doubts about whether the company would be around to honor warranties and other deals. While closing a large number of stores could raise many of the same issues for consumers on a local level, it could also produce a short-term holiday windfall both for the company and consumers, since the company could use the move to generate an estimated $350 million in revenue through job cuts, reduced real estate costs…and liquidating inventory.
According to a company spokesperson, no decisions have been made, and the company’s management and board are reviewing all aspects of Circuit City’s business.
Circuit City has been particularly hit during the 2008 financial downturn, with its stock losing almost 90 percent of its value to trade at just $0.35 per share this week. The current credit freeze would also make it difficult for the company to secure any sort of funding: even if the company declared bankruptcy, it would have difficulty lining up investors to provide debtor-in-possession financing.
Earlier this year, video rental firm Blockbuster offered to buy Circuit City for up to $.1.3 billion, but called the deal off a few months later…presumably after it got a closer look at the company’s books.
