Circuit City to File Bankruptcy Tomorrow?

November 9, 2008 by  
Filed under Debt and Credit, Money and Behavior

At church this morning, a friend told me that Circuit City would be filing for bankruptcy tomorrow (Monday).  He works for a company that supplies product to Circuit City and, according to him, his company had received notice of the impending filing directly from Circuit City.  Of course, many pundits have been predicting that bankruptcy was in Circuit City’s near future but most thought that it would delay filing until after the Christmas shopping season.

Part of the hard truth associated with a bankruptcy filing by a big box retailer such as Circuit City is the reality-check message that it sends consumers who have been living on credit for so long.  Much of the that credit has been used to make discretionary purchases.  I can’t think of much that Circuit City sells that would fall into the “need” or “must have” categories.  It’s mostly music, gadgets, electronics, and computers.

Although I feel sorry for Circuit City employees who will lose their jobs, the positive result from this consumer reaility check is that it may strike another blow against credit-addicted consumerism.  Based on recent history, it seems that it takes a massively public business failure (e.g., Lehman Brothers) or near failure (AIG, Fannie Mae, Freddie Mac) to get the attention of U.S. consumers.  It’s like shock therapy that jolts the clueless into a state of semi-awareness of their own bad habits.  Gradual erosion of the economy or of their own financial condition has not been enough.

In summary, if my friend is correct about the Circuit City bankruptcy filing tomorrow, look for the silver lining:  consumers will notice and may learn something that will positively influence their own future spending behavior.


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Comments

3 Responses to “Circuit City to File Bankruptcy Tomorrow?”
  1. goldenrail says:

    While I definitely agree that most people spend too much money on discretionary purchases, I have to disagree that Circuit City doesn’t sell anything that qualifies as “must have.” In today’s society, most people do need a computer. Maybe not the fanciest thing out there, but some sort of a computer. Have you tried not using yours for a week? It’s not easy.

  2. adam hartung says:

    Remember when Circuit City was a favorite in “Good to Great” by Jim Collins? Remember when we thought being big gave you clout with customers and vendors to produce long-term returns (Michael Porter’s 5 Forces Model)? It’s time we recognize that the old approach to management doesn’t work in a rapidly shifting competitive world. There are winners in today’s market, but they follow a different approach.

  3. Goldenrail – There are degrees of “must have.” A computer is very helpful in many aspects of like but is not essential. Having cable TV falls in the same category. Also, getting a computer upgrade or cell phone upgrade every 12 months is not essential, yet broke people do that with regularity. I could not write this blog without my computer but I would add that it is 3+ years old.

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