NEW YORK -- In a move certain to add another regional discounter to the general merchandise graveyard, Bradlees Inc. has thrown in the towel.
The Braintree, Mass.-based discount chain, as expected, on Tuesday filed for Chapter 11 bankruptcy court protection in Manhattan to proceed toward an "orderly wind-down" of its business and sale of its assets. Attorneys from Weil, Gotshal & Manges are representing the distressed retailer.
The filing is the regional discounter's second tour in bankruptcy proceedings. The discounter previously filed, also in Manhattan, in June 1995 and exited Chapter 11 in February 1999.
An affidavit by David L. Schmitt, vice president and general counsel, which was filed with the Chapter 11 petition, stated that the retailer will continue operating until it completes its wind-down of business.
Bradlees operates 105 stores, averaging 75,000 square feet, in seven Northeastern states: Massachusetts, New Jersey, Connecticut, New Hampshire, New York, Pennsylvania and Maine. The retailer, which bowed in 1958, employed 10,000 full-time and part-time employees as of Tuesday. In the nine-month period ended in October, the retailer posted operating losses of $37.3 million on sales of $1 billion. As of Oct. 28, the company's books listed liabilities of $565.5 million and assets of $574.8 million in book value.
Schmitt said that the Bradlees' business strategy in the early 1990s was to open new stores and remodel existing locations. The company spent $182 million in capital costs between 1992 and January 1995 to open 15 new stores and remodel 41 existing sites. With declining operating performance and the aggressive expansion, the company suffered severe liquidity problems that pushed it into Chapter 11 in 1995, when vendors and others were unwilling to extend additional trade credit.
Although Bradlees made key changes in its business model through its reorganization, new socioeconomic factors contributed to Tuesday's filing, according to Schmitt. He said in the affidavit that Bradlees' core customers still are shoppers living on a moderate or fixed income, whose disposable income is limited. In recent months, repeated increases in interest rates, along with rising gas and home heating-oil prices, have reduced the disposable income of the Bradlees customer.
While those factors have adversely affected all retailers, Bradlees said that it has also suffered from increased competition from Kohl's, Target and Wal-Mart, some of which have taken over the former sites operated by the now defunct Caldor. Schmitt said that the tightening and elimination of trade credit has prevented the retailer from replenishing its inventory on an ongoing basis.The general counsel also said that the company hired CS First Boston in mid-2000 to find a strategic buyer, but that "it became readily apparent that interested parties were only desirous of acquiring certain of the debtors' assets (such as leases or inventory), thereby effectively resulting in a liquidation of the debtors' business."
Schmitt disclosed that while Bradlees analyzed its ability to reorganize on a "stand-alone" basis, it determined that such efforts would require "several fundamental and costly changes to the business to attempt to reattract customers that had been lost to the competition." Since November, the retailer has made attempts to solicit offers for the sale of its various store sites and other assets. On Dec. 20, Bradlees selected Gordon Bros. Retail Partners to conduct liquidation sales.
Included in Bradlees' listing of its unsecured trade creditors are: Handleman Co., Troy, Mich., $3.6 million; Thomson Consumer Electronics, Indianapolis, Ind., $2.8 million; Hershey Chocolate Co., Hershey, Pa., $2.6 million; Mattel Toys, El Segundo, Calif., $2.6 million, and CPS Corp., Franklin, Tenn., $2.2 million.
Other unsecured trade creditors are Wrangler, New York, $1.2 million, and Fruit of the Loom, Bowling Green, Ky., $1 million. Fruit of the Loom is still in Chapter 11 proceedings.
Bradlees' largest secured claim is held by Fleet Retail Finance Inc. for $174.5 million.
In addition to its 105 stores and its headquarters and a distribution center in Braintree, the retailer also leases two distribution centers and a warehouse.
The warehouse also is in Braintree, and the distribution centers are in Edison, N.J., and Westfield, Mass.
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