Stores pulling the plug

Electronics retailers Circuit City, Tweeter feel economic strain

November 04, 2008|By Andrea K. Walker | Andrea K. Walker,andrea.walker@baltsun.com

When the housing market was booming and credit was readily available, shoppers dropped thousands of dollars on big-screen televisions, stereo systems and the latest computer technology.

But splurging on big-ticket items stopped with the turbulent economy. And now consumer electronics stores are feeling the pain. Circuit City announced yesterday it will close 20 percent of its more than 700 stores - including three in Maryland - and lay off 17 percent of its work force just after Christmas.

Also, Tweeter, the Massachusetts-based electronics chain, appears to be going out of business. Clerks from several area stores said they were told Friday that the retailer would close all its stores in the next seven weeks.

The two electronics chains have been hit with a slowdown in spending by shoppers reluctant to buy or unable to afford anything but necessities. Intensifying their problems, the companies are having trouble getting credit to buy inventory for their stores just as the holiday season begins. Circuit City said some of its vendors are demanding more restrictive payment terms, including cash before goods are shipped.

They also face more competition from the leading electronics store, Best Buy, which has become known for its large selection and customer service. Discounters such as Wal-Mart, Target and Sam's Club beat them out on price.

"The weakened environment has resulted in a slowdown of consumer spending, further impacting our business as well as the business of our vendor," James A. Marcum, vice chairman and acting president and chief executive officer of Circuit City, said in a statement. "The combination of these trends has strained severely our working capital and liquidity, and so we are making a number of difficult, but necessary, decisions to address the company's financial situation as quickly as possible."

The two chains are the latest retailers to succumb to the weakened retail environment. Sharper Image, Mervyn's and local institution C-Mart have been forced completely out of business. Analysts predict many others won't make it past the holiday season, which some say is shaping up to be the worst since the 1980s. November and December is when many retailers earn most of their profits.

Retailers such as Wal-Mart began holiday discounts in October. Others have held sales more frequently than in recent years as they struggle to get rid of fall inventory.

"The consumer is in a crisis," said Howard Davidowitz, chairman of Davidowitz & Associates, a national retail and investment banking firm in New York. "They don't have the money. We can't expect consumers to keep going out and spending on expensive items."

Luxury items with big price tags seem to be more severely affected, as shoppers decide they can do without items such as upgraded televisions for a year. Even wealthy consumers, normally more immune to fluctuations in the economy, have been affected by the economic downturn.

"They're trying to cut back on unnecessary spending," said Diane Crispell, executive editor of GfK Roper Consulting. "Unfortunately, electronics tend to lots of people to fall into that discretionary category - especially when it comes to some bigger-ticket items like video game systems and things like that."

In Maryland, Circuit City will close the Golden Ring store on Pulaski Highway as well as stores in Beltsville and Marlow Heights. Spokesman Bill Cimino said six stores would remain in the Baltimore area. It is completely exiting 12 other markets.

The remaining stores should be well-stocked for the holiday season despite the tightening by vendors, Cimino said.

Circuit City has been working on "strategic alternatives" to improve its position, and Cimino said the holiday season would be very important to its performance.

Yesterday's announcement comes a little more than a month after the retailer posted a wider second-quarter loss and withdrew its fiscal 2009 outlook amid sluggish sales, poor traffic and heightened competition.

"We're doing this to address our immediate financial condition," Cimino said in a phone interview. "But as we said in the release, we're still evaluating all options."

The company is also cutting back on store openings and working with landlords to renegotiate leases and lower rents.

A spokesman for Tweeter had no comment on store closings. In July 2007, it was bought out of bankruptcy for $38 million by Schultze Asset Management. Tweeter's CEO left last month.

Associates and managers reached by phone at four of seven Maryland Tweeter stores said they were told last week that the company was closing all of its stores. The employees didn't want to give their names for fear of losing their jobs prematurely.

The chain has hired a liquidation company and began storewide sales yesterday, knocking 10 percent off everything in stock, employees said.

An employee at the store in Columbia said that the main problem was the company couldn't get enough credit to buy inventory.

"Tweeter is going under," an employee at the Glen Burnie store said.

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