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VOL. 123 | NO. 216 | Tuesday, November 4, 2008

Circuit City to Close Two Memphis-Area Stores

By Tom Wilemon

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Circuit City Stores Inc. will close two of its four locations in the Memphis area as part of a nationwide downsizing effort, the company announced Monday.

It was unclear by press time how many local jobs will be eliminated.

“The weakened environment has resulted in a slowdown of consumer spending, further impacting our business as well as the business of our vendors,” said James A. Marcum, vice chairman and acting president and chief executive officer, in the statement. “The combination of these trends has strained severely our working capital and liquidity.”

The newly opened Collierville Store on East Shelby Drive and the Memphis store at 6491 Winchester Road are on the closure list along with 153 other stores nationwide. The company said the stores will be closed today and reopen Wednesday for liquidation sales. The sales will not last beyond year’s end.

The store closures represent about 20 percent of the company’s retail locations and will put thousands of people out of work.

The stores on the closure list were either underperforming or no longer a strategic fit, the statement said.

The Collierville store received its certificate of occupancy in April and opened this spring. The bedroom community is an area with the kind of demographics that have attracted many new retailers in recent years.

“We continue to have prospects come into town, but I think we are just like everyone else in the country right now,” said David Smoak, assistant town administrator. “Are we growing? Sure, we still are doing some building permits and things like that; not as much as we used to. You know, it’s just a subset of what the economy looks like overall in the whole country.”

The Memphis store on the closure list is about a mile and a half east of Hickory Ridge Mall, an area that has been losing businesses for several years. The manager of a beauty supply store said he did not know what effect the closure of the Circuit City would have on his sales.

“Basically, that store and our store are totally different markets,” said Paul Cho, the manager of B & P Beauty Supply. “I don’t think it’s going to affect our customer traffic, but I’m not sure. It will affect some business, but not much.”

He predicted small businesses that cater to ethnic and urban groups will fill the void left by big retailers. The purchase of the Hickory Ridge Mall by World Overcomers Outreach Ministries Church gives him hope about the area, Cho said.

“I’m so appreciative for that church,” Cho said.

Women who attend churches in the area are some of his best customers, he said.

The Circuit City stores at 8045 Giacosa Place in Memphis and at 6680 Southcrest Parkway in Southaven will remain open. The stores slated for closure have already been deleted from the store locator list on the company’s Web site.

The move comes as Circuit City heads into a crucial holiday shopping season that could determine its future, amid slower consumer spending that has even the least vulnerable retailers worried.

Marcum called the decision to close stores “difficult, but necessary.”

Based on nearly 43,000 employees as of Feb. 29, 17 percent could be up to about 7,300 workers. But the company said the number would likely be lower in part because employees in some markets may become employed at other stores. It would not give further details.

Circuit City shares rose 14 cents, or about 54 percent, to 40 cents in early trading Monday.

The stores the company is shuttering generated about $1.4 billion in net sales in fiscal 2008.

Circuit City spokesman Bill Cimino said the decision to exit 12 markets was based on store performance, not competitive reasons.

“There are some markets where we have more competitors, there are some markets where we have less competitors; in all, we’re closing 155 stores that were underperforming,” Cimino said. “We’re taking this action because we’re doing this for the future of the company.”

Circuit City also provided updates on other aspects of its business, including restrictive actions taken by vendors, including limiting credit for purchases. But the company said while it is working to secure support from vendors, the “current mix of terms and credit availability is becoming unmanageable for the company.”

It also said it has been unable to collect an income tax refund of about $80 million that Circuit City executives say it is owed from the federal government.

The company has had only one profitable quarter in the past year, posting a wider second-quarter loss in September with a 13 percent decline in sales at stores open at least a year. Its results have weakened as the company faces significant declines in traffic, heightened competition from rival Best Buy Co. and others and a weakened brand position.

Circuit City, which is reviewing its operations while exploring strategic alternatives, has been working with advisers to determine how to substantially improve its operating and financial performance.

The company said last week that the New York Stock Exchange has warned it that its stock price is not high enough for continued listing.

The NYSE said Circuit City shares had an average closing price of less than $1 over 30 consecutive trading days as of Oct. 22, falling short of the exchange’s requirement. Its shares have closed under a dollar in trading since Sept. 30, when they closed at 76 cents. Shares have traded between 17 cents and $8.24 in the last year.

To regain compliance with the NYSE, Circuit City’s common stock share price and the average share price over a consecutive 30-day trading period must both exceed $1 within six months following receipt of the notice.

A major Circuit City shareholder – Classic Fund Management AG, a Liechtenstein-based asset management company – also said in a regulatory filing last week that it cut its holdings to 8.2 million shares, or about 4.8 percent, from 9.5 million shares, or 5.6 percent. It did not disclose a reason for the change.

Circuit City has been under new leadership since late September when Chief Executive Philip J. Schoonover agreed to step down. He was replaced by Marcum, who was tapped to oversee Circuit City’s multiyear turnaround efforts.

The Associated Press contributed to this story.

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