Bye Bye Circuit City - RIP

Salient points:

The November-December period can account for 50% or more of retailers' annual profits and sales. But this year, many Americans have clamped down on their shopping habits amid a weak economy and a shaky job and credit market.

Industry analysts warn that retailers will have to do whatever they can this year if they hope to have at least decent holiday sales.

According to the company's Chapter 11 filing with the U.S. bankruptcy court in Richmond, Va., Circuit City has 566 operating stores in the United States and will continue to do business and pay its workers while it restructures debt and its business operations.

In announcing the store closings last week, Richmond-based Circuit City said it would cut about 17% of its 40,000 domestic workers.

Johnson said Circuit City's problems are partly its own making. On the external front, the retailer's competitive landscape has became much more formidable as Best Buy continues to enhance its product offerings and service.

Circuit City has also felt the squeeze from discounters like Wal-Mart (WMT, Fortune 500) who has aggressively expanded into electronics over the last few years.

More importantly, Johnson believes Circuit City shot itself in the foot when the company decided last year to fire more 3,000 of its highest-paid sales staff and replace them with lower-paid workers.

"This was a huge strategic blunder," said Johnson. "People want a knowledgeable sales person when they are spending $2,000 on a TV. They don't want to buy it from some kid at Wal-Mart," he said

The company said it has negotiated a commitment for a $1.1 billion credit line to supplement its working capital. The company said the credit line will replace the company's $1.3 billion asset-based line provided by its lenders.

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