Rumors of the death of Circuit City had been circulating for well over a year. First, a potential purchase by Blockbuster went, well, bust. Then, the resignation of its CEO (Sept. 2008), followed by the shuttering of 155 stores and the filing for bankruptcy protection (Nov. 2008). And then poof, almost without warning, the recent decision to liquidate all 567 stores and the addition of 30,000 souls to our growing unemployment woes.
I have to admit: the speed with which this happened completely threw me and my colleagues. Circuit City is ─ or was ─ one of our tenants, located in the first LEED retail shopping center in the country. It was a high-performing store, among the highest in the nation. And one of the reasons for this particular store’s profitability was its lower operating costs, the result of numerous energy-saving strategies we had employed in building it out. Our thinking was this: Circuit City would get rid of the dogs as part of its re-organization plan and hold on to its remaining gems, emerging from Chapter 11 smaller, hopefully wiser, and a credit-worthy tenant. I’m guessing several major REITs with significant Circuit City stores in their portfolios were thinking similarly: DDR, with 1.7 percent of its total revenue dependent on this retailer, Kimco, with 1.5%, and a slew of other bigees (Simon, Vornado, Weingarten) all saddled with sanguine hopes that the business would make it.
Boy were we wrong. What the hell happened?
The first thought concerns changes in bankruptcy proceedings. Years ago, companies filing for Chapter 11 had years to develop a reorganization plan. This was great for bankruptcy attorneys, who made off like bandits, siphoning off obscene fees to the detriment of creditors. It was probably good for companies trying to reorganize, since they had considerable time to come up with a plan. It sucked for landlords and owners, who were stuck in limbo, unable to make decisions regarding their holdings. The new bankruptcy laws are now streamlined, which in this economic downturn simply does not allow much time for companies like Circuit City to come up with something viable. Maybe the pendulum has swung too far back in the other direction, from being far too lenient to being far too severe. By the same token, it may be fair to say that companies like Circuit City that live by the sword of hyper-speed growth through over-leveraging, die by that sword.
A more probing explanation for what happened looks to Circuit City’s business plan, which has been described as the “monkey in the middle,” stuck between deep-discount behemoths like Wal-Mart and the more disciplined focus of Best Buy. Circuit City took on enormous debt without restraint, was beset by mismanagement, and choked on its own overweening ambitions. An old story of greed at all costs.
But I think we need to look deeper than this. We need to consider our willingness or desire or simple complacency to embrace a type of homogenization of place, where REITs are hell-bent on placing investor capital as fast as possible and hence partnering with a plethora of retailers also hell-bent on using their own investor capital to open up new stores at a geometric rate. The result? Between 1970 and 1990, there were 25,000 shopping centers developed, or about one every 7 hours. Every hour of the day, something like 45 acres of farmland is converted to development, with more than a million acres a year lost to roads, urban sprawl, and parking lots. And what do we have to show for it but a tapestry of neon Anywhere-villes USA, with a loss of a sense of community and place, lives of ever-greater commuting and wastefulness, of carbon emissions and social isolation and declining health. The story is a familiar one.
The specific story of Circuit City is a sad one, of greed and unbridled growth resulting in a loss of jobs and empty storefronts. It is a story we will probably see replicated with other retailers in the months ahead. And it will have its effect not only on big REITs but small development companies such as ours that also got caught up in paying too much attention to banking demands for so-called credit-worthy tenants.
My hope is that the specific story of Circuit City will serve as something of a morality tale, one that will teach us to rewire the way we think of our communities, the ways in which we attend more to local businesses that need our support, the ways in which we address growth as something more long-term and more deliberate. Perhaps this specific bankruptcy will teach us to re-wire our own circuitry as communities where lasting value is found in more than the latest electronic gadgetry.