U.S. News

Circuit City to Close 70 Stores, Change Management


Circuit City Stores said it is closing about 70 stores, most of them in Canada, and Chief Merchandising Officer Douglas Moore has left as the company responds to increased pressure in the electronics retail market.

Circuit City "is moving in the right direction by reevaluating its Canada operations and is focused on better managing its cost structure," Credit Suisse analyst Gary Balter said in a research note.

The retailer, which lags behind rival Best Buy , is restructuring after facing intense gross margin pressure in the flat panel television category in the third quarter, Chairman, President and Chief Executive Philip Schoonover said in a statement.

The CEO said Circuit City is taking some actions immediately and other plans are expected to be implemented over the next six months.

Under the new management structure, the company's merchandising, services and marketing will fall under one leader, David Mathews, and all of the retail channels -- U.S. stores, international stores and Circuit City Direct -- will report to George Clark Jr., executive vice president of multichannel sales.

The company also said that Chief Financial Officer Mike Foss would work on improving productivity and identifying new growth opportunities.

A company spokesman said Moore, who'd worked with the company for about 17 years, decided to leave.

"We believe the management changes are the least favorable development," Goldman Sachs analyst Matthew Fassler said in a research note. He added that Moore was the first top member of Schoonover's team to leave since the retailer's turnaround gained traction.

Circuit City, the No. 2 U.S. consumer electronics chain reported a surprise third-quarter loss in December after it cut prices on flat-panel TVs and computers to lure customers amid heated competition. While the move boosted sales, it hurt profit margins.

Wal-Mart Stores, the world's largest retailer, has been particularly aggressive in recent months, cutting prices on plasma televisions by as much as $500 in early November to get a jump on the holiday-season price wars.

Store Closings

Circuit City plans to close about 62 underperforming company-owned stores in its international segment in Canada. This division also plans to exit some product lines to align its merchandise offerings with demand.

Circuit City also plans to close the domestic segment operation that was being held for sale and had already been reported as discontinued.

By the end of February, Circuit City plans to close 7 U.S. superstores that generated $71 million in revenue during the 12 months ended Dec. 31. The company plans to close another superstore this month before opening a replacement store during the first quarter of fiscal 2008.

The retailer also is shutting down a Louisville, Kentucky, distribution center used mainly for store fixtures and signs.

Circuit City expects to incur pretax expenses of about $30 million related to store and other facility closings, $40 million to $60 million in expenses related to goodwill impairment, and about $15 million in expenses related to other restructuring activities.

Circuit City said that substantially all of the $85 million to $105 million in expenses would be incurred in the fourth quarter of fiscal 2007, and that more expenses could be incurred in the quarter as it moves forward with its plans.