The Wall Street Journal is reporting that beleaguered retailer Circuit City is considering a plan to close 150 stores and cut thousands of jobs in an effort to avoid bankruptcy.
One out-of-court solution the company is studying would likely lead to the closing of at least 150 stores and the elimination of thousands of jobs, said people familiar with the company’s plans. This would let the retailer liquidate about $350 million in inventory, which it could use to pay off certain real-estate costs, such as leases on abandoned sites. It would then hope to press existing landlords to renegotiate leases, many of which Circuit City regards as overpriced. Circuit City’s investors have homed in on those leases as a threat to the company’s health.
Many were negotiated when real-estate prices were booming earlier this decade. Roughly 90% of the leases don’t expire until 2014 or later, and about 80 are for vacant locations.
Circuit City’s stock has plummeted since July, when Blockbuster Inc. rescinded an offer to buy the company for at least $6 a share. In 4 p.m. New York Stock Exchange composite trading Friday, Circuit City shares closed at 39 cents, down from a 52-week high of $8.72. It hasn’t had a profitable quarter in more than a year.
The company has hired the same lawfirm that took Kmart through bankruptcy, but is trying to avoid that option because of (fairly reasonable) concerns that consumers will not trust warranties from a company that is currently bankrupt.
Circuit City Weighs Broad Cuts (subscription) [WSJ]