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Circuit City to shut down 62 stores in Canada

The downsizing is part of a series of changes to improve the retailer's financial performance

Earlier this morning Circuit City Stores Inc. of Richmond, Va., announced it would close 62 of its wholly-owned stores in Canada because they were under performing.

Jim Babb, spokesperson for Circuit City, said while the closings are unfortunate it is not an exiting of the market for the company.

Circuit City will still run 800 stores as part of its international segment down from approximately 950. Of the 62 store closings 45 were formerly Radio Shack, 14 are Battery Plus and three are THS stores.

“These 62 stores in Canada were not profitable and from our analysis they were not going to be profitable and they are not in any one province or region,” Babb said.

Babb added that roughly 140 full-time and 80 part-time positions, not people, will be eliminated. There is a possibility that some of these employees will be transferred to other nearby locations, he said.

“This is an important event for these folks and we are trying to be sensitive about it,” Babb said. Those that do lose their jobs will get separation packages.

The majority of these stores that are closing were once Radio Shack. As part of a court order in mid-2005 all of these outlets, mostly in malls across Canada, were rebranded The Source by Circuit City.

In 2004 Circuit City acquired InterTan Inc., a holding company based in Barrie, Ont., which owned the Radio Shack stores, for US$284. Circuit City was then forced to drop the Radio Shack brand in Canada because Radio Shack USA revoked the Canadian brand licensing rights shortly after the acquisition was announced.

This decision to close stores comes on the heels of Circuit City’s announcement to return 92 Rogers Plus stores to Rogers Wireless Inc. of Toronto.

The international (Canadian) segment also expects to incur costs related to plans to exit product lines and other actions around inventory to align its merchandise assortment with consumer demand.

The company did explain that the intensified gross margin pressures that Circuit City witnessed in the third quarter within the flat panel display category led to the decision to reduce stores in Canada.

Circuit City will also close seven superstores in the U.S. as part of the restructuring. These stores generated US$71 million in revenue during the 12 months ended December 31, 2006, but suffered through negative cash flow and low-volume problems, the company said in a press release.

The company also plans to close a distribution center located in Louisville, Ky., that is used primarily for store fixtures and signage.

Philip J. Schoonover, chairman, president and chief executive officer of Circuit City Stores, Inc., said in a prepared statement that: “We now have completed the planning work and are taking immediate action on the first of those recommendations. Other recommendations are being developed, and we expect to implement them over the next six months. The steps we are taking today represent the initial efforts toward getting our cost structure more in line with today’s marketplace.”

Babb added that Circuit City analyses store performance on a on going basis. This results in store closings and openings every year. For example, the company closed stores in 2004 and will open more than 60 in the next fiscal year.

Also part of the restructuring announcement was a senior management shake up. Douglas T. Moore, executive vice-president and chief merchandising officer, has left the company.

David L. Mathews, who leads the merchandising, marketing, services and supply chain teams, will replace him.

Steven Pappas, senior vice-president of small stores for Circuit City, who runs the international segment for the company, will stay at his current position.

All retail channels, including all domestic and international retail stores and Circuit City Direct, will report to George D. Clark, Jr., executive vice-president for multi-channel sales.

Comment: cdnedit@itbusiness.ca