With consumer spending down, a stifling economy and losses in eight of the last nine quarters, Circuit City Stores Inc. said Monday that it would close about 20% of its more than 700 U.S. stores and fire about 17% of its employees by the end of the year.
One bit of silver lining for consumers is that they can snag some bargains for the holidays as the nation's second-largest consumer electronics retailer starts liquidation sales Wednesday at the 155 stores it is closing nationwide.
Circuit City will be pulling out of a dozen metropolitan markets altogether, including Phoenix and Kansas City, Kan.
The stores to be closed include 24 in California, half in such Southern California cities as Compton, Pomona, Riverside and Thousand Oaks.
The company joins such diverse retailers as Home Depot Inc., jeweler Zale Corp. and PetSmart Inc. as chains that have announced store closings.
More will be coming, especially in January, as reduced consumer spending and tight credit markets wreak havoc on retailers, said economist Peter Morici, a University of Maryland business professor.
"This is a sector in distress," he said. "Margins are going to be very tight; it's going to be hard to get sales."
Consumer spending fell 3.1% in the third quarter, the first decline in quarterly spending since 1991 and the biggest since 1980. The rate is key because such spending accounts for two-thirds of the U.S. economy.
Business strategist Burt P. Flickinger III at Strategic Resource Group predicts that the next six months will be plagued by a record number of retail bankruptcy filings and massive store closings as firms try to shed unprofitable stores.
For Circuit City, the stores being closed accounted for $1.4 billion in sales in its last fiscal year but were considered to be "underperforming," with lower profit margins and sales than other stores, spokeswoman Jackie Foreman said. The company will have 566 stores open going into next year.
"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, the chain's acting chief executive. "The combination of these trends has strained severely our working capital and liquidity."
Sales fell 9.6% to $2.4 billion for Circuit City's fiscal second quarter, which ended Aug. 31, from the same period last year.
