Circuit City files for bankruptcy protection

By Karen Jacobs

ATLANTA (Reuters) - Circuit City Stores Inc, the No. 2 U.S. consumer electronics retailer, filed for bankruptcy on Monday just weeks before the start of the holiday shopping season, becoming the largest retailer to file for Chapter 11 since Kmart in 2002.

Circuit City fell victim to tighter credit terms from vendors, a dwindling cash position and decreased consumer spending amid a deepening economic crisis.

The filing comes one week after the 59-year-old retailer said it would close 155 U.S. stores, or more than one-fifth of its retail base, and cut 17 percent of its U.S. work force.

The retailer and 17 affiliates filed for protection from creditors in U.S. bankruptcy court in Richmond, Virginia, where it is based. Its Canadian operations also filed for creditor protection in an Ontario court.

Analysts said there was now a possibility the company would close more U.S. stores as it negotiates to exit costly leases in Chapter 11.

"Don't rule anything out yet," said Jefferies & Co analyst Dan Binder. "You could go away, you could restructure to something smaller, maybe somebody buys the brand and a couple hundred stores and maybe it ends up a regional player."

The company could face an uphill struggle to reorganize and emerge from bankruptcy since credit is tight and consumer spending has plummeted.

"It has a lot to do with the macroeconomic crisis in the world right now," said Aravindh Vanchesan, program manager for the retail systems group at consulting firm Frost & Sullivan. "Right now, customers are cutting back on spending."

U.S. home-goods retailer Linens 'n Things tried to maintain operations by closing a portion of its stores after its May Chapter 11 filing, but finally liquidated altogether. Last week, smaller electronics chain Tweeter filed Chapter 11 and said it was holding store-closing sales.

RECENT LAYOFFS

In Monday's filing, Chief Financial Officer Bruce Besanko said the company hoped to secure financing to continue its turnaround. The company expressed hope it would be able to emerge from Chapter 11 in the first half of 2009.

"Without immediate relief, the company is concerned that it will not receive goods for Black Friday and the upcoming holiday season, which could cause irreparable harm to the company and its stakeholders," Besanko said.

Besanko's statement said 1,300 workers were laid off on November 7. That day, the Richmond newspaper reported that hundreds of workers had been let go from company headquarters.

The Chapter 11 filing caps a tough two years for the company, which posted losses for five of the past six quarters and faced a proxy contest from a major shareholder this year. Movie-rental firm Blockbuster Inc withdrew a takeover bid for Circuit City in July.

The company's stock has swooned 99 percent since January 2007 and now trades at less than 50 cents. The shares were suspended by the NYSE on Monday.