US consumer electronics retailer Circuit City has filed for bankruptcy protection just a few weeks before the start of the key holiday shopping season, becoming the largest retailer to file under Chapter 11 this year.
Circuit City fell victim to tighter credit terms from vendors and a loss of market share to Best Buy, Wal-Mart Stores Inc and other rivals.
The retailer and 17 affiliates filed for Chapter 11 protection from creditors with the US bankruptcy court in Richmond, Virginia, where it is based.
Circuit City filed one week after saying it would close 155 stores, or more than one-fifth of its retail base, and cut 17 per cent of its US workforce. It also said it was considering all options to restructure.
In a court filing today, Chief Financial Officer Bruce Besanko said the retailer filed for Chapter 11 in order to continue its turnaround efforts.
"In large part, a Chapter 11 filing is due to three factors, all of which contributed to a liquidity crisis that prevented the company from completing its turnaround goals outside of formal proceedings: erosion of vendor confidence, decreased liquidity and a global economic crisis," Mr Besanko said.
Circuit City had lost money in five of the last six quarters. In recent weeks, suppliers pinched by the global credit crunch have tightened terms, sometimes requiring up-front payments before shipping goods.
Larger rival Best Buy, which is based in Minneapolis, has said it might take over stores that distressed rivals close.
Yet a flood of discounted merchandise from liquidating Circuit City stores could hurt Best Buy during this holiday shopping season, said Jefferies & Co analyst Dan Binder.