Another one bites the dust

Circuit City to liquidate - 30,000 jobs lost

Bankrupt Circuit City Stores Inc., unable to work out a sale of the company, said Friday it will go out of business — closing its 567 U.S. stores and cutting 30,000 jobs.

The nation's second-biggest consumer electronics retailer is the latest casualty of an unprecedented pullback in consumer spending that has driven other brands such as KB Toys, Mervyns LLC and Linens 'N Things into bankruptcy. Experts believe there will be more to come.

"This is the only possible path for our company," Circuit City's acting Chief Executive James A. Marcum said in a statement. "We are extremely disappointed by this outcome."

The company had been seeking a buyer or a deal to refinance its debt, but the hobbled credit market and consumer worries proved insurmountable. Negotiations for an acquisition went past midnight on Thursday, a Circuit City lawyer said in court.

Like the falling prices for old muscle cars that I talked about Wednesday, this isn't surprising. Circuit City was weaker than Best Buy long before the economy turned south. Any business that was just hanging on two years ago might be lucky to survive 2009. A lot of them won't.

But this thinning of the herd isn't going to help the economy in the long run. We can see a great example of this in the banking industry. When we come out of this we're going to have no more than four banks (Wells Fargo, Citi, BofA and Chase) that control a huge majority of the entire banking industry. In consumer electronics we'll have Best Buy and not much else. Your choice of a neighborhood book store is likely to be Barnes and Noble or, if you're lucky, an independent shop with a tiny fraction of the selection. I think its very likely that at this time next year there will only be two domestic car companies, and maybe only three import brands that will come close to being major players in the market.

What will this reduction (or elimination) of competition have on the economy when it starts growing again? A smart company would go on like they were fighting for their life and keep the pressure on themselves to keep prices low and service high, but that tends to be the rare exception. Absence of competition almost always leads to higher prices, poorer quality and less innovation. When we're talking about this becoming the new norm for such wide areas of the economy - and when the size of the surviving companies is so large that it makes building a competitor practically impossible - that can make it everyone's problem.