It's a Pity, Circuit City

Circuit City (NYSE: CC  ) and Santa Claus both want to stick around after Christmas. But which one can you believe in?

Even though the battered consumer-electronics retailer recently hired the same law firm that held Kmart's hand through Chapter 11 bankruptcy several years ago, Circuit City may still have some fight left in it. This morning's Wall Street Journal leans on unnamed "people familiar with the company" in claiming that the superstore chain is thinking about closing at least 150 stores and slashing several thousand jobs, instead of filing for bankruptcy protection.

Bankruptcy reorganization can be a killer. Kmart made it through the storm, but it was aided by rich real estate holdings, which made it an attractive catch when it eventually combined with Sears to form Sears Holdings (Nasdaq: SHLD  ) .

Kmart also specializes in soft goods and low-priced sundries, so it's not as if shoppers were hesitant during the process. On the other hand, consumers aren't going to buy big-ticket flat screens, computers, and cameras if they don't think Circuit City will be there to take returns. Don't even think about buying someone a Circuit City gift card. To some stocking-stuffer-watchers, that may be about as welcome as a lump of coal.

The move to shrink from its base of 714 stateside stores and a payroll of 45,000 is substantial, but it's hard to imagine the company's sales holding up if it has to go through the Chapter 11 wringer.

There are just too many competitors out there. In addition to market leader Best Buy (NYSE: BBY  ) , there are smaller chains such as Conn's (Nasdaq: CONN  ) and hhgregg (NYSE: HHG  ) , which are consistently profitable. Specialists such as GameStop (NYSE: GME  ) , for video games, and RadioShack (NYSE: RSH  ) , for electronics, fit the bill in their niches with a less daunting anti-superstore footprint.

In other words, the world may not necessarily miss Circuit City if it goes away. However, because shareowners and tens of thousands of jobs are at stake, it would be a shame to see Circuit City fade away. Even if that's a fitting end after the company ridiculously rebuffed several buyout offers in recent years, no one should have to spend the holidays in a world of hurt.

Other ways to see more than the red in Circuit City's logo:

Creative Corner: How would you save Circuit City? Post your turnaround thoughts in the comment box below. 

Conn's is a former Motley Fool Hidden Gems PayDirt selection. Sears Holdings and Best Buy are Motley Fool Inside Value recommendations. GameStop and Best Buy are Motley Fool Stock Advisor picks. The Fool owns shares of Best Buy. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz doesn't go to his local Circuit City store as much as he used to. He doesn't own shares in any of the stocks in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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  • Report this Comment On October 28, 2008, at 12:14 AM, geomorphosis2 wrote:

    Creative Corner: How would you save Circuit City?

    1. Fire most of the management there.

    2. Hire commissioned employees that need to eat and make money.

    3. Get out of markets/areas that CC knows nothing about or can't compete in.

    4. Acknowledge that they aren't a Best Buy.

    5. Downsize the number of stores and use the cashflow to start buying property in this market ...right now.

    6. Use inhouse credit department.

    7. Focus on high margin items....get away from loss leaders.

    8. Create a warranty/service department.

    9. Hire new competent management, getting rid of the old dead weight that is just waiting for retirement. Hire youngblood.

    10. Steal some ideas from other companies like Sam Walton did.

    11. Have the balls to do all this. ...SOON.

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