Byline: Vicki M. Young

NEW YORK — Venture Stores Inc. is taking aggressive steps to stem the tide of red ink, but even after signing a $135 million financing deal, retail analysts are skeptical about the retailer’s viability.
While acknowledging that the funding package with Kimco Realty has improved the near-term finances of the $1.5 billion Midwest chain, retail analysts pointed out that Venture’s operating results have been deteriorating, despite its repositioning effort of the last 18 months.
Venture’s loss for the six months ended July 26 widened to $102.9 million from a loss of $2.1 million in the prior-year period. Sales slid 5.5 percent at the 93-unit chain, to $643 million versus $681 million.
The first-half results reflect a charge of $63 million in the second quarter, stemming from the sale of 20 stores to Kmart Corp. in July.
“Venture needs to have a good fourth quarter,” observed Philip Abbenhaus, director of corporate transactions at KPMG Peat Marwick in St. Louis. “Its financial moves have been extremely aggressive and have allowed it to maneuver with the trade to get the goods in a timely fashion.”
This has righted the problem Venture encountered last spring, when nervous factoring executives tightened the pipelines, triggering shortages of apparel. Venture has expanded apparel to 33 percent of its assortment, adding categories such as petites, plus sizes and uniforms to the merchandise mix, noted Cliff Campeau, senior vice president for marketing.
According to Russell Solt, Venture’s chief financial officer, the chain’s shelves have been stocked with apparel for the fall season. As a hedge against supply slowdowns, Venture gradually has shifted more of its sourcing overseas and given more business to vendors that are guaranteeing shipment.
Venture’s primary goal has been to “get shelves filled for the third quarter and position itself for a modest profit in the fourth quarter,” Solt added.
By adding private labels, such as the Stone Mesa denim and casualwear it launched about a year ago, Venture has sought to improve the quality of its apparel while continuing to offer value prices. Other private labels in the women’s roster at Venture include Jessica Stevens, a collection of moderate career wear, and Lauren Rogers, a better-priced line.
“Now it’s up to the merchandise to perform,” observed Abbenhaus. “If Venture achieves its fourth-quarter target of modest profits, it would take some pressure off, and there would be some reason for optimism.
“The deal with Kimco gives them more flexibility to move toward the next stage of their repositioning,” he added.
The real estate transaction struck with Kimco in August provides Venture with $75 million in cash and calls for Kimco to assume $60 million of Venture’s existing mortgage debt. The agreement facilitated the sale and leaseback to Kimco of 46 Venture stores, as well as a distribution center and some undeveloped land. Kimco has an option to include 13 other Venture properties under certain conditions that could not be learned, and a five-year right of first refusal to acquire another 31 Venture stores.
Venture pays more rent on the leases transferred to Kimco than it did before the financing deal, but the rates are still below market value, according to Solt. Because the leases are worth more than the difference in rent, Solt said it made sense for Venture to strike the deal with Kimco to raise cash for its turnaround effort.
Solt, who is a friend of Kimco chairman and chief executive officer Milton Cooper, said the deal was forged over a two-month period. Cooper did not return phone calls.
Despite Venture’s multipronged turnaround effort, retail observers remain unconvinced the company’s improvements will restore its profitability.
“After 18 months of remaking itself, there has been no real evidence of improvement,” said a credit analyst, commenting on Venture’s shift to marketing mostly family apparel and home goods at value prices instead of being a discounter of general merchandise.
“Venture blew it in the beginning because they were all over the board as to what to do,” added the analyst, who requested anonymity.
Solt disagreed with that assessment, stating, “There have been positive gross margin moves that will become significant as time goes on.” For the second quarter, however, Venture’s gross margin was a paltry 15.2 percent.
Industry observers noted the creativity of Venture’s financing deal with Kimco, but some attorneys cautioned that the arrangement could complicate matters if the firm’s repositioning effort is unsuccessful and a bankruptcy filing becomes necessary.
“While a sale and leaseback transaction is a common device, there might be problems ahead if things go south,” offered Michael Schreiber, a real estate attorney at Robinson Brog Leinwand Reich Genovese & Gluck. “In that scenario, a question could be raised over whether there was a true sale of the property or whether the transaction was a form of secured financing.”
If Venture eventually filed for Chapter 11 bankruptcy protection, the bankruptcy court might look to see if the Venture-Kimco transaction was a fair deal and if the debtor received the benefit of the bargain. If those conditions were not met, Venture’s creditors could try to undo the deal.
The reorganization process would be impeded by the subsequent litigation under such a scenario, a bankruptcy attorney explained.
For now, though, the Kimco deal “gave Venture more liquidity to continue its repositioning,” said Jim Ferstl, executive vice president and chief merchandise manager. “Kimco [provides Venture with] more money than needed for the highest payment period, from October through November.”
In addition to making the funding arrangement with Kimco, Venture raised $38 million plus cash from liquidation sales by unloading 20 underperforming stores to Kmart Corp. in July. Following the actual transfer of those sites to Kmart on Sept. 15, the O’Fallon, Mo.-based discounter had 93 stores in nine states.
Venture’s three biggest markets are Kansas City, St. Louis and Chicago, where it faces stiff competition from Wal-Mart Stores; Target Stores; Kmart Corp.; Kohl’s Corp.; Sears, Roebuck & Co., and J.C. Penney. The $1.5 billion regional chain faces the nearly impossible challenge of competing on price with Wal-Mart’s $105 billion colossus, or to serving up fashion to rival that of $18 billion Target Stores, which develops its own apparel.
“Many regional discounters are breathing their last breath,” observed Peter Schaeffer, analyst at SBC Warburg Dillon Read, “because there’s no need for them.”

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