Circuit City Files for Bankruptcy Protection

Circuit city customers Chris Gallagher and his sister Catherine, of Warsaw Va., look over cameras in...

Circuit city customers Chris Gallagher and his sister Catherine, of Warsaw Va., look over cameras in the Short Pump Circuit City store in a Richmond, Va. file photo from Dec. 19, 2006. Circuit City Stores Inc., the nation's No. 2 consumer electronics retailer, said Thursday, Feb. 8, 2007, it plans to close seven domestic Superstores, a distribution center and 62 company-owned stores overseas to cut costs and improve its financial performance.

(Steve Helber, File/AP Photo)

Facing pressure from vendors and consumers who aren't spending, Circuit City Stores Inc. filed for bankruptcy protection Monday as it heads into the busy holiday season with hopes that the move will help it survive.

Under Chapter 11 protection, the nation's second-biggest electronics retailer can keep operating while it develops a reorganization plan. Its Canadian operations also filed for similar protection.

The company also said it cut 700 more jobs at its Richmond, Va., headquarters, after announcing a week ago that it would close 20 percent of its stores and lay off thousands of workers.

In court documents, Chief Financial Officer Bruce H. Besanko cited three factors: erosion of vendor confidence, decreased liquidity and the global economic crisis.

"Without immediate relief, the company is concerned that it will not receive goods for Black Friday and the upcoming holiday season, which could cause irreparable harm to the company and its stakeholders," Besanko said in the filing.

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Its shares fell 14 cents, or about 56 percent, to 11 cents on Monday before being halted.

Circuit City, which has had only one profitable quarter in the past year, has faced significant declines in traffic and heightened competition from rival Best Buy Co. and others. The company laid off about 3,400 retail employees last year and replaced them with lower-paid workers, a move analysts said could backfire, hurting morale and driving away customers.

While the retail industry overall is facing what's expected to be the weakest holiday season in decades, Circuit City's struggles have intensified as nervous consumers spend less and credit has become tighter.

At a hearing in Richmond, U.S. Bankruptcy Judge Kevin Huennekens granted Circuit City interim approval to secure $1.1 billion in debtor-in-possession loans while it is in bankruptcy protection. Those funds, needed to stock merchandise and pay employees, replace a $1.3 billion asset-backed loan the company had been using.