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Add Fortunoff to the list of well-known retailers that might disappear from the American landscape.
Sources said the jewelry and housewares chain, confronted by mounting difficulties on all sides, is set to again file for bankruptcy court protection, possibly as soon as Thursday. But instead of finding a white knight, this time the chain could be headed toward liquidation.
The worsening economy has pushed several retailers into bankruptcy in the past several months, including Goody’s, Gottschalks, Steve & Barry’s, Circuit City, Mervyns and Linens-N-Things, and has spurred speculation about many more. Meanwhile, even relatively healthy retailers are slashing costs — with layoffs at all levels — from 7,000 at Macy’s Inc. to 6,700 at Starbucks — as well as cutting 401(k) contributions and freezing salaries.
Fortunoff’s owner, NRDC Equity Partners, put the troubled business up for sale recently. With no taker in sight, business exceedingly difficult and bills piling up, NRDC has decided to seek court protection rather than pump money into a flagging operation with an uncertain future. The move is likely to set the stage for a court-ordered auction of Fortunoff and liquidation.
NRDC executives declined comment. WWD first reported on Friday that a Chapter 11 filing was likely.
Fortunoff has an unusual merchandising formula, which worked well for decades, but now seems like a curse. The chain specializes in home and jewelry, which just happen to be among the most challenged sectors in retailing. According to the Jewelers Board of Trade, a credit and collections bureau, 1,140 jewelry businesses closed in 2008 and bankruptcies were up 18.6 percent in the sector. Three jewelry chains were liquidated — Whitehall Jewelers, Friedman’s and Crescent Jewelers. Zale Corp. has been cutting jobs and closing stores, and Finlay Enterprises, which runs leased jewelry departments inside stores around the country, has been experiencing liquidity problems.
NRDC bought Fortunoff out of bankruptcy in March from Trimaran Capital Partners and K Group.
Once Fortunoff enters bankruptcy proceedings, bottom-fishers will circle, among them The Hilco Organization, which invests in, and consults for, retailers, brands and manufacturers, and also conducts liquidations, such as Circuit City, which is ongoing. Hilco has already been in talks with NRDC. Last year, when Fortunoff was up for sale, Hilco was in on the bidding, but lost out to NRDC, which paid $80 million plus $30 million in debt and other obligations for the $400 million Fortunoff.
The chain was founded in 1922 in Brooklyn as a neighborhood housewares store, nestled underneath the elevated train, by Max and Clara Fortunoff. That first unit led to eight stores in the borough. The Fortunoffs’ son, Alan, served as president and chief executive officer until his death in July 2000. It was his philosophy to expand the business, but only within an hour or two’s driving distance from the Westbury, N.Y., flagship on Long Island, so it would be easier to keep tabs on the branches.
While under family control, Fortunoff gained a reputation that exceeded its footprint. It’s been known for its value and promotions, service, bridal and gift registries, and sells fine jewelry and fine watches, outdoor furniture, tabletop, housewares and home textiles. In recent years, however, the Fortunoff business was not competitive and struggled with antiquated merchandising, marketing and systems. Fortunoff also made some risky real estate maneuvers, which apparently didn’t pay off. A 180,000-square-foot unit in White Plains, N.Y., on the site of a former Saks Fifth Avenue, opened in 2003 at a cost of $25 million to $30 million but has struggled to generate substantial returns. A year ago, Fortunoff closed its location at 681 Fifth Avenue by 54th Street, which opened in 1979. The unit was relocated to 3 West 57th Street, just west of Bergdorf Goodman. The new location, close but not on Fifth Avenue, never saw the same level of traffic and was closed last month.
Fortunoff operates four large jewelry and home furnishings units in Westbury, the largest unit in the chain, with 200,000 square feet; Wayne and Woodbridge, N.J., and White Plains. There is also a specialized jewelry and gift store in Paramus, N.J., and 14 backyard-furniture stores in the New York metropolitan area, which are seasonal.
Early last year, NRDC seemed eager to revitalize and modernize Fortunoff. New management was recruited and plans to double the size of the business and roll Fortunoff jewelry and home shops into Lord & Taylor stores (also owned by NRDC) were cited.
NRDC began the process of rolling Fortunoff jewelry shops out to certain L&T locations, replacing leased jewelry shops once operated by Finlay. However, NRDC pulled the plug on the project midstream. With Fortunoff out of the picture now, NRDC is trying to restore its agreement with Finlay so Lord & Taylor can still sell jewelry, said to account for roughly $30 million to $40 million in sales at the chain.
As the home and jewelry markets became increasingly challenged, so did the prospects for a Fortunoff turnaround. NRDC now considers the chain a distraction from its major retail holdings — the Hudson’s Bay Trading Co., which includes The Bay, Zellers, Home Outfitters and Fields divisions, all in Canada, representing $7 billion in volume, as well as Lord & Taylor in the U.S., representing about $1 billion in volume. NRDC has been pumping money into HBTC to shore up the operations, and last month announced it would centralize all of its retail operations. Fortunoff was left out of that plan.