FAQ: What Circuit City's bankruptcy means for consumers

We sort out some frequently asked questions regarding Circuit City's announcement that it's filing for bankruptcy protection.

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Just a week after saying it was closing some stores to get its finances in order, Circuit City on Monday filed for bankruptcy protection . It will help keep creditors like Sony, Microsoft, Toshiba, and many others who have yet to receive payment for their products, at bay while Circuit City tries to get back on track. The company has also secured a $1.1 billion debtors' line of credit to keep stores open and pay its employees.

The timing, for a retailer, couldn't be worse. It's not exactly assuring that right as we're about to start holiday shopping one of the main places for consumer electronics gifts seems unstable. So what does this mean for consumers? Here are some important questions and answers about what Circuit City's current situation means for you.

Q: Does this mean less choice for places to shop for the holidays?
A: Actually, no. Circuit City will be open for business as usual. The company did announce last week that it would be closing 155 stores , which will go on as planned, but 566 of its stores will remain open. Whether they will be fully stocked is another question, but Circuit City says that its new line of credit will help keep its shelves full.

Q: Will there be any staff around to answer my questions?
A: Circuit City says it's reduced its support staff in district and regional roles, in addition to the positions eliminated at its stores currently being liquidated. Overall, there will be 20 percent fewer employees company-wide, but the retailer insists its stores will be well-staffed during the holidays.

Q: Great, will everything be on sale?
A: Not necessarily. One of the biggest myths about store liquidations and or retailers in financial trouble is the assumption that there will be huge discounts as a result. That's actually false most of the time. When companies are in debt they need to make as much money as they can in as little time as possible. Though there will be some price reductions, it doesn't mean drastic ones. As reports from last week indicated, the stores that are currently being closed were offering only minimal discounts.

Circuit City bankruptcy
Circuit City

Q: What does this mean for Circuit City's credit cards and warranties?
A: Circuit City's co-branded Chase credit card and Circuit City Advantage Protection Plans are each handled by third parties and will not change because of the bankruptcy filing.

Q: If I buy a gift card for someone this holiday, will the company still redeem it? And will returns be honored?
A: We don't know yet. Circuit City says it has asked the bankruptcy court for permission to honor returns, exchanges, and gift cards, but it does not have a definitive answer yet. Circuit City says that it does expect its request to be granted, but don't count on it until we know for sure.

Q: What about Firedog?
A: Circuit City's tech support service brand will continue as normal, with no changes, according to the company.

Q: Will Circuit City be around after the holidays? Or is this just a temporary fix?
A: It's still uncertain what Circuit City could look like six months from now. However, the idea behind filing for bankruptcy and the billion-dollar line of credit is to give the company more time to sort out its finances. Its biggest problem was credit--now it has that.

In the meantime, as it proceeds with the liquidation of the 155 stores, Circuit City will get some cash for products in those stores, and eventually be freed up from the associated property leases. The retailer's balance sheet will also benefit from the payroll cut resulting from the layoffs at headquarters and in the liquidated stores. Circuit City also plans to renegotiate some of the leases it has on the stores it plans to keep open.

About the author

Erica Ogg is a CNET News reporter who covers Apple, HP, Dell, and other PC makers, as well as the consumer electronics industry. She's also one of the hosts of CNET News' Daily Podcast. In her non-work life, she's a history geek, a loyal Dodgers fan, and a mac-and-cheese connoisseur.

 

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