Monday, November 10, 2008

Circuit City Bankruptcy

Nothing new here, but also not much of a chance for exposure. You can count the CMBS deals on your fingers and toes, and the only ones with significant exposure can be counted with just fingers. They tend to be in strip centers or in standalone stores (for some reason these seem to be horrible locations), which do not have any significant REIT exposure (DDR has a little exposure, but its not related to today's 25% decline in their stock).

I'm not sure exactly where they locked in their decision to fail, but it could have been in 2003 when they decided their knowledgeable sales staff were making way too much with the silly commission-based pay, so they fired them all and replaced them with your typical high-school grad (or not) working for an hourly wage, just long enough to find a better job, with no experience. The handful of these employees, bless their hearts, that survived enough to get some pay raises, were subsequently let go in March 2007 - again because they were paid too much. Purportedly, the same employees were asked to rejoin the firm just two months later after sales plummeted (whoa, the sales people were SELLING things? That's just crazy logic).

Management turned down multiple buyout offers and cobranding strategies, sold and allowed profitable lines of business to leave the firm, fired all the good employees, maintained horrible locations (even after the currently announced closures), and now they're in Chapter 11?!

Of course, this filing does let them reject leases in bankruptcy court, and is a negative for the CMBS deals where they reside, and a horrible negative for any employees that are left (take your severance and move on ASAP).

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