After Dismal Christmas sales and a sharp sales drop-off post-holidays, the gravity of the financial situation has begun to set in. The first to declare bankruptcy is Circuit City, which had already declared bankruptcy before Christmas, but was unable to reorganize:
Circuit City to close 567 remaining US stores
By MICHAEL FELBERBAUM and VINNEE TONG, AP Business Writers Michael Felberbaum And Vinnee Tong, Ap Business Writers
became the largest retailer to fall victim to the expanding financial crisis Friday, announcing it will shut down its remaining 567 U.S. stores at the cost of 34,000 more jobs after failing to sell the business.
The closure of the nation’s second-biggest consumer electronics retailer spells more trouble for the nations malls, and is the latest casualty of an unprecedented pullback in consumer spending that has claimed KB Toys, Mervyns LLC and Linens ‘N Things.
Richmond, Va.-based Circuit City had been seeking a buyer or a deal to refinance its debt, but the hobbled credit market and consumer worries proved insurmountable. Two potential buyers considered a shrunken form of the business, retaining as many 350 stores or as few as 180. But Circuit City couldn’t secure the necessary financing or support from vendors.
U.S. Bankruptcy Judge Kevin Huennekens gave final approval to the liquidation plan Friday afternoon. Some employees were notified that they would lose their jobs and certain stores would begin close-out sales as early as Saturday. Circuit City said liquidating the stores should last through March, after which they will be closed. A small staff will keep working at the corporate office through that process. Sales will begin with up to 30 percent discounts and will be adjusted as the liquidation continues.
It was unclear what would happen to the company’s 765 retail stores and dealer outlets in Canada. Galardi told a judge there are still bids for the Canadian business.
Did you catch the line about “support from vendors?” That means that Circuit City went to their vendors about giving them more leeway in payments; even reducing prices to increase sales . . .
And the vendors said “No,” or something close enough to “No” as to be indistinguishable from it. And with Circuit City’s vendors are mostly electronics, and electronics mean manufacturing, and manufacturing . . .
. . . means Unions. Congratulations, Union employees — you just shut yourself out of some more jobs.
The other bankruptcy is the third card in a house of cards to fall: The Minneapolis Star-Tribune; the newspaper that’s been so desperately “in the tank” for Al Franken:
Star Tribune files for Chapter 11 bankruptcy
The Star Tribune, saddled with high debt and a sharp decline in print advertising, filed a Chapter 11 bankruptcy petition Thursday night. Minnesota’s largest newspaper will try to use bankruptcy to restructure its debt and lower its labor costs.
Like most newspapers, the Star Tribune has experienced a sharp decline in print advertising. Its earnings before interest, taxes and debt payments were about $26 million in 2008, down from about $59 million in 2007 and $115 million in 2004.
It is the second major newspaper publisher to file for bankruptcy protection. The Tribune Co., publisher of the Chicago Tribune, Los Angeles Times and Baltimore Sun among other publications and television stations, filed for bankruptcy in early December, burdened by $13 billion in debt and the same deteriorating advertising environment plaguing the Star Tribune. Hearst Corp., owner of the Seattle Post-Intelligencer, last week said it would close the 146-year-old paper if no buyer could be found in the coming months. “We’re in a period of sustained pain for the newspaper business,” Mutter said. “The employment ad business has been melting away since 2000.
Over the past two years, Star Tribune management made several efforts to cut costs, mainly by reducing the workforce and renegotiating new cost-cutting contracts with its unions, which represent nearly two-thirds of the company’s 1,405 full-time employee positions. In July, the Newspaper Guild, the union representing newsroom workers, agreed to a three-year contract that saved an estimated $2.5 million a year. But other unions refused to agree to new contracts.
And again, it’s the Unions that are the sticking points. This allows me to tell a anecdote from a few years ago. When the US Steel plant in South Chicago was having problems several years ago, the Unions stubbornly refused to negotiate or reduce wages or benefits. After several months of working without a contract, the membership authorized a strike vote, and the the plant closed on Friday afternoon. The Union workers celebrated, congratulating themselves on “sticking it to the man!” and “showing solidarity” against management.
Imagine their surprise when Monday came and the plant didn’t open. It is still closed to this day.
The Unions won the battle, but lost the war. It’s something we see repeating itself again today with Circuit City and the newspaper chains. Unwilling to compromise, they are killing their own golden geese, and throwing themselves out of work by the tens of thousands.
I’m just wondering ho long it will take until they figure it out. Years, very likely.