Circuit City Closures Add to Retail Woes

With the 2008 holiday season spending looking to be, at best, anemic, "we can expect to see a lot more of this after the first of the year," Janis B. Schiff, the Washington, DC-based Real Estate Section leader at Holland + Knight, tells GlobeSt.com.

There had been rumors circulating for a while that Circuit City would pull the plug on under performing locations, she says. "When disposable income goes down, spending on discretionary big ticket items immediately scales back," she says. Circuit City is taking an aggressive three-pronged approach by closing 155 domestic stores, reducing future store openings and aggressively renegotiating certain leases. Its defensive maneuvering might not end with these moves either, the company says in a press release--as it is considering "all available options and alternatives to restructure its business."

The store closings will begin immediately in 55 US media markets, of which Circuit City will completely exit 12. These stores will not open tomorrow as they prepare for closing sales. By year-end, all of the stores should be shut down. Circuit City did not return a call to GlobeSt.com in time for publication. The stores are located in Alabama, Arkansas, Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maryland, Michigan, Missouri, Mississippi, North Carolina, New Jersey, Nevada, New York, Ohio, Tennessee, Texas, Virginia, Washington and Wisconsin.

Circuit City will not open at least 10 locations previously slated to open, although it does still expects to open up to two incremental stores during the remainder of fiscal 2009. It also intends to renegotiate some leases to lower rents. In some cases, the company may choose to exit a lease if the rent is not reduced, it says.

Retail is facing stiff headwinds from many directions right now, Schiff notes. It is grappling with the credit crisis, as well as the consumer downturn. Indeed, last week a Reuters/University of Michigan survey found that consumer confidence fell to 57.6 from 70.3 in September--the biggest drop on record.

Not all retail is performing poorly, though, Schiff hastens to add. "Service retail is still doing well, such as grocery-anchored shopping centers. But any retail dependent on discretionary spending will be struggling for a while."

Leo Ullman, chairman and president of Cedar Shopping Centers, made similar observations during a recent a roundtable discussion sponsored by Incisive Media and Sperry Van Ness. Ullman noted that even though consumer spending is low now, the supermarket sector, which anchors many of his company's 120 properties, is performing well.