Regardless of what you think of this company, the complete liquidation of the second largest electronics retailer in America is not a good omen for our nation’s economic prospects in the coming year:
Circuit City, once a bellwether American retailer, is going out of business for good, stripping the nation of its second-largest consumer electronics chain.
The company, which filed for bankruptcy protection in November, said Friday that it would liquidate its stores and other assets.
Just last week, Circuit City — which has some 30,000 employees and 567 stores — was in talks with two potential buyers, but it was unable to reach a timely agreement with its creditors and lenders.
The ripple effects from this will be larger than you think. Empty commercial store fronts will reduce business for stores that rely on magnets like Circuit City to attract business. Thirty thousand employees will be dumped out on the street, adding to the demand on state governments for unemployment benefits, worker’s compensation claims, etc. Going out of business sales at these stores will depress prices even more adding to deflationary pressures on former competitors struggling remain in business. Psychologically, there will be an impact on the markets. Every investor will be asking the question “Who’s next?” Expect to see the share prices of other major retailers drop precipitously next week. This is only the beginning:
The demise of Circuit City, while not surprising given its declining sales, is part of a radical shift taking place in American retailing. Weak chains — unable to weather the freeze-up in consumer spending, and choked by tight credit markets — are shuttering their doors.
Last year, a raft of retailers including Boscov’s, Sharper Image, Mervyns, Linens ’n Things, Whitehall Jewelers and Steve & Barry’s filed for bankruptcy protection. This week alone, Goody’s Family Clothing and Gottschalks Inc. also filed. Many more retailers are expected to follow suit as they run out of working capital or are unable to finance their debt. But emerging from bankruptcy is harder than ever because of changes in the bankruptcy code and vise-like credit markets.
Obama and Congress better move fast to amend the Bankruptcy Code and crank up that Super Duper Stimulus Package or you’re going to see a lot more companies closing their doors permanently, and a lot more former employees looking for work in an environment where jobs are disappearing faster than scantily clad assistants at a Magicians’ Convention. Of course, whatever they do may be too little and too late to have any real effect this year. I regret using such a hackneyed phrase, but in this instance it fits perfectly the situation we find ourselves in: The worst is yet to come.
Why was Bush smiling last night at the end of his speech? Because he knows he’s getting out of Dodge just before the full force of the economic cattle stampede his policies unleashed hits town, leaving the rest of us to get trampled in the panics and disasters to come.
