Circuit City Stores Inc., the nation’s No. 2 consumer electronics retailer, said Thursday it plans to close seven domestic Superstores, a Kentucky distribution center and 62 company-owned stores in Canada to cut costs and improve its financial performance.
The closings will take place over the next six months at an expected total cost of $85 million to $105 million, all to be incurred in the current fourth fiscal quarter, which ends Feb. 28, Circuit City said.
“Because of the intensified gross margin pressures that we saw in the third quarter within the flat panel television category, we launched efforts to accelerate the timing of planned initiatives to improve sales and gross margin, as well as improve the efficiency of our expense structure,” chief executive Philip J. Schoonover said in a statement.
Circuit City would not identify the stores to be closed because company officials were in the process of notifying employees. The stores will be closed Monday, then reopen Wednesday for clearance sales, spokesman Bill Cimino said.
The company could not immediately determine the exact number of employees who would lose their jobs. The distribution center employs 12 people, and each of the seven Superstores slated for closing employs about 30 full-time and part-time workers, Cimino said.
Circuit City operates through 643 Superstores and 12 other locations in 158 U.S. markets. The international segment has more than 800 retail stores and dealer outlets in Canada. The company also sells it products online.
The retailer, second behind Best Buy Inc., also is realigning its management structure. It named a new merchandising officer, David L. Mathews, who replaces Douglas T. Moore, executive vice president and chief merchandising officer. Mathews will be head of merchandising, marketing, services and supply chains. George D. Clark Jr. will lead Circuit City’s retail channels.
The seven domestic Superstores slated to close by the end of February generated $71 million in revenue in 2006. Separately, one Superstore will be closed this month in advance of opening a replacement store in the first fiscal quarter of 2008.
Circuit City’s distribution center in Louisville was used primarily for store fixtures and signage. A separate distribution facility there primarily used to distribute entertainment software will remain open.
Circuit City’s international segment plans to close approximately 62 underperforming company-owned stores in Canada. Each of the stores employed between two to 15 people, Cimino said. The company previously announced that it would return 92 Rogers Plus stores to Rogers Wireless Inc. The combined plans would result in the layoffs of 70 workers in the store support center and in field management, Circuit City said. The international segment also expects to incur costs related to plans to exit product lines and otherwise match up its merchandise with consumer demand.
The company also said it will shut down its Rapid Satellite business, which was being offered for sale. Circuit City purchased the small satellite-television retailer in 2005.
Raymond James & Associates analyst Dan Wewer endorsed Circuit City’s restructuring effort.
“We believe it is critical for all consumer electronics retailers, including Circuit City, to lower their cost structure given ongoing pressures on gross margin rate,” Wewer said in a research brief. “Frankly, we had anticipated Circuit City would look to close all of its Canadian businesses given their poor performance.”
Circuit City has long struggled for market share against Richfield, Minn.-based Best Buy, and analysts have said each of Best Buy’s locations bring in about twice as much revenue as its smaller rival. Both have seen fierce competition from Wal-Mart Stores Inc., which lowered prices for key products such as flat-panel televisions this past holiday shopping season, forcing Circuit City and Best Buy to follow suit and cutting into their third-quarter results.
Circuit City lost $16 million in the third quarter; Best Buy’s third-quarter profit rose nearly 9 percent to $150 million. Circuit City will report its fourth-quarter results in early April, Cimino said.