JOAN & DAVID FILES CHAPTER 11
Byline: Vicki M. Young / David Moin
NEW YORK — After months and months of financial difficulties and trying to find a buyer, Joan & David, the shoe and ready-to-wear wholesaler and retailer, filed for Chapter 11 bankruptcy court protection in Manhattan late Thursday.
The filing confirmed a report in WWD on Friday.
The privately held Massachusetts-based corporation, which filed under the name joan and david helpern inc., was formed in 1968. It had at least a couple of decades of success, attaining strong brand recognition and popularity among consumers. It also had a strong franchise at Ann Taylor, but Ann Taylor decided to drop the line in 1990 to develop its own shoes, seeking better margins at more moderate prices.
To make up for lost sales, the strong-willed Joan Helpern, who designs the Joan & David collections, embarked on an accelerated retail expansion, opening at least 10 freestanding stores and nine in-store shops annually from 1990 through 1998. Last week, financial sources said Joan & David suffered from “an overexpansion” and didn’t have sufficient management and infrastructure to run the retail operation, contributing to financial difficulties and the bankruptcy.
There have also been reports of squabbling among the Helperns, who run the company. David Helpern is chairman and treasurer, and his son, David Jr., runs the day-to-day operations. The Helperns declined to comment Friday.
In addition, the company was hit with production problems in 1995 when a footwear licensor, who represented a substantial portion of Joan & David’s wholesale business, ended the arrangement, according to an affidavit filed by David Helpern with the petition. To protect its relationships with factories, Joan & David picked up the slack on the production commitments by producing goods for its own retail stores. That resulted in an inventory glut during 1996 and 1997, forcing the company to job-out much merchandise at a loss.
Helpern said in an affidavit: “The debtor sustain[ed] significant losses from operations for the past five fiscal years.” Those losses stemmed from the need to “sell greater percentages of merchandise at steeply discounted prices because of excess production commitments and inventory” and a “decline in Asian consumer demand associated with economic problems in the region.”
Helpern said the company’s plans are to restructure in Chapter 11 and emerge as a smaller operation. He added that the company has explored the possibility of finding a buyer for the business.
Reportedly, the company had been trying to renegotiate leases and stretch out payments due suppliers. Once a company goes bankrupt, it can get out of lease agreements with minimal penalties and obligations to creditors prior to the filing are frozen until a restructuring plan is approved by court.
Newmark Retail Financial Advisers LLC, a leading financial adviser to retailers, is working with Joan & David on restructuring and recovery efforts. Robert Pressman, a former co-chief executive officer of Barneys New York, is ceo and managing principal of the advisory firm.
The Joan & David footwear operation offers a “full range of diverse styles each season, but produces relatively few pairs of each style to maintain the brand’s exclusivity.” Artisans from 20 independently owned and operated factories, primarily in Italy, are partners in the design process. Four ready-to-wear and knitwear collections are also presented each year.
The company’s primary focus is on retail distribution. Joan & David also has a significant presence in the wholesale market for footwear. Helpern noted, “After an unexpected loss resulting from the demands of two major retail companies for the guarantee of sales and margins for the licensed name, the debtor decided to curtail wholesale sales.”
The bankrupt firm operates freestanding stores, in-store shops and outlet stores in both the U.S. and overseas. Leased department arrangements with retailers include Bloomingdale’s, Dayton Hudson department stores, Macy’s, Tootsies and Toronto-based Holt Renfrew. Internationally, there is also a Joan Helpern Signature in-store shop at Harvey Nichols and a retail outlet in Barcelona.
The company at the end of 1999 had 19 employees at its headquarters at 4 West 58th Street; 52 employees at its Everett, Mass., distribution center, which also houses back office operations, and 386 throughout the firm’s 68 U.S.-based stores.
Liabilities as of Jan. 1 were $33.1 million, while assets were $34.8 million. Sales for the eleven-month period ending Jan. 1 were $75.8 million. Operating profit for the next 30 days is projected at $556,000.
The firm gained brand awareness from the late 1960s through the late 1980s, Helpern noted, through its exclusive operation of leased shoe departments in Ann Taylor.
In February, the company secured new financing with Paragon Capital for up $15 million in borrowings, which is subject to bankruptcy court approval. The financing package replaces the current agreement with Fleet Retail Finance Inc.
Top secured creditors include Fleet Retail, holding a $6.5 million secured claim, and Massachusetts Capital Resource Co., holding a $2.1 million claim.
Top unsecured creditors include: GFT Donna Spa, Turino, Italy, $1.8 million; Gregor, Monsummano Terme, Italy, $1.7 million; Maruska, Castelfranco di Soto, Italy, $1.5 million; Cabiria, Monsummano Terme, $1.2 million, and Bijou, Castelfranco di Soto, $1 million.