If you thought Black Friday sales were spectacular, you’ve seen nothing yet. Circuit City is going into liquidation, and everything really must go.

The electronics giant had filed for Chapter 11 bankruptcy protection in November. That’s a scheme under which debts are legally frozen while a company attempts to restructure in order to improve its financial situation and become a viable business.

The store’s problems at the time were a combination of poor performance and poor timing. Sales had dropped and the firm lost $162.7 million in a single quarter. That might not have been fatal, but the effects of the credit crunch meant wary manufacturers began demanding payment up front for stock, which destroyed the firm’s cash flow.

The firm closed 155 stores immediately and then began working on a plan to sell 180 stores (likely loss-making ones) to other firms. The idea was to raise enough cash from this sell-off to be able to trade normally in the remaining stores.

Today the firm told the bankruptcy court that it’s been unable to find a buyer and intends to close down completely starting tomorrow. Unless any firm makes an offer for the stock, stores will begin clearance sales which could run until the end of March.

There is a slim possibility that a buyer might take Circuit City’s brand name and contacts to launch an online-only retail store. However, that’s more of a hope than an expectation at this stage.

The liquidation would be bad news for most concerned: more than 30,000 would lose their jobs, stockholders would see their investment wiped out, and consumers would have less choice and less price competition in the market. The only obvious winners are bargain-hunters in the short term, and rivals Best Buy, which saw its stock rise 3.5% upon the news.

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Entry was posted on Friday, January 16th, 2009 at 4:09 pm under Retail, Technology.

Read more entries by John Lister.
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