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Circuit City to shut down

Court approves bankrupt electronics retailer's motion to liquidate and close its remaining 567 stores.

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By Parija B. Kavilanz, CNNMoney.com senior writer


NEW YORK (CNNMoney.com) -- Bankrupt electronics retailer Circuit City Inc. said Friday it will close its remaining 567 U.S. stores and sell all its merchandise.

The company said it has 34,000 employees.

"We are extremely disappointed by this outcome," James Marcum, acting CEO for Circuit City, said in a statement. "We were unable to reach an agreement with our creditors and lenders to structure a going-concern transaction in the limited timeframe available, and so this is the only possible path for our company."

In a filing with the U.S. Bankruptcy Court for the Eastern District of Virginia, which a judge approved late Friday, Circuit City - the No. 2 electronics retailer after Best Buy (BBY, Fortune 500) - said it had reached an agreement with four companies to start the liquidation process.

The company said the sale would begin Saturday and run until March 31, pending court approval.

The retailer's Web site and call center will cease to operate after Jan. 18.

Circuit City said employees will receive 60 days' notice of the termination.

Employees who are laid off earlier will get pay and benefits for the 60-day period beginning Friday, the retailer said.

Those who remain with the company to assist with the liquidation, will receive pay and benefits.

Circuit City also operates about 765 retail stores and dealer outlets in Canada. The company said its Canadian operations, which employ 3,000 workers, will continue to operate.

The company said it will redeem its gift cards through the liquidation sale, but the cards will have no value once the stores are closed.

"This is very significant. It shows you how bad things are for the retail industry," said George Whalin, president and CEO of Retail Management Consultants.

Whalin said management mistakes over the past few years combined with the recession brought down Circuit City.

"This company made massive mistakes," he said, citing a decision to get rid of sales people and other mismanagement.

What's more, given the credit market freeze, Whalin added that no manufacturer wants to sell to any retailer who doesn't have money to pay for the merchandise.

At the same time, Whalin said there's still a very slim chance that one or more firms that have expressed an interest in buying Circuit City could still buy it out of bankruptcy over the next few days.

"I wouldn't say it's completely over yet for Circuit City, but it's almost over," Whalin said.

Love Goel, CEO of Growth Ventures Group, a private equity firm focused on retailers, agreed with Whalin.

"Circuit City isn't a viable business in its old incarnation when half of electronics sales have moved online," Goel said. "CompUSA and Tweeter also didn't make it for the same reason," referring to two stores forced to close most or all of their locations.

However, Goel speculated that Circuit City could still find a lifeline if Golden Gate Capital, one of the reported lead bidders for the merchant, bought the company and restructured it primarily as an online business with very few physical stores.

"This would eliminate overhead costs, vendor conflicts and other issues," he said. "Circuit City has an almost $1 billion online business. So there is a future for it in that regard."

NPD Group's retail analyst Marshal Cohen warned that no retailer is "sacred" in this environment unless "you have a service model that differentiates you from the competition and keeps pace with changing needs of the consumer."

He said Circuit City was late to the game with its Firedog customer service business, and it didn't resonate with customers as well as Best Buy's Geek Squad was business.

What's more, Cohen said Circuit City found itself in the unfortunate position of becoming the "monkey in the middle" as Wal-Mart (WMT, Fortune 500) aggressively moved into the electronics market with its low prices model, and Best Buy continued to widen the gap with its competitors and dominate as the industry leader.

"Circuit City just got stuck in the middle for too long," said Cohen.  To top of page

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