Circuit City’s last stand

Troubled electronics retailer Circuit City is closing 155 stores in the hope of building a sustainable retail network. The landscape looks bleak for the company, however, with the US consumer expected to continue to curtail spending on luxury items and gadgets.

Adding to its woes, the company said its access to its asset-based credit facility had been cut following a third-party appraisal that reduced the estimated net orderly liquidation value of the company’s inventory.

Its vendors have been piling in, demanding up-front payments and refusing to ship to Circuit City, citing their own inability to insure shipments on high-priced items such as large-screen plasma televisions. With vendors withholding shipments, the closure of the 155 stores will allow the company to restock shelves at stores that will remain open with inventory from stores on the chopping block.

As the company struggles to put together a survival plan it will also curtail plans to open 12 stores, opening only two next year. That may be too optimistic: a distressed debt hedge fund manager who described himself as waiting for bargains is expecting Circuit City to follow the path of Linens ‘n Things – if the retailer manages to survive the holiday season at all.

Without financing and without an interested buyer, the manager expects Circuit City to be in full liquidation in January.

The company said it would continue to take appropriate actions to conserve cash, reduce expenses and improve liquidity. It added that it was continuing to evaluate additional near-term cost reduction initiatives that might be necessary to address its financial condition, and noted that it was also in negotiations with its lenders and other third parties regarding various financing alternatives.

The company’s shares traded at 24 cents a share on Friday.