What happened to the restructuring process? A storm of retailers, including Meryvns, Levitz, and Value City, are choosing to liquidate rather than reorganize under Chapter 11 protection. The financial crisis has worsened prospects for finding potential buyers in a reorganization, as well as obtaining the financing needed to pay creditors, suppliers and employees.
Some attendees at the recent Turnaround Management Association annual meeting lamented that a lack of financing could deprive many advisers of much-needed time and money to repair ailing firms.
"Many of the patients are getting to us too late, I fear," Henry Miller, co-founder of the turnaround firm Miller Buckfire, told The Wall Street Journal.
Last week, Levitz Furniture filed a motion to liquidate its remaining 76 stores last week within fifteen days of its bankruptcy filing. Mervyns had filed for Chapter 11 in July, hoping to close just 26 stores, but said last week it would close all of its remaining 149 stores after turnaround efforts failed. Value City Department Stores filed Chapter 11 bankruptcy on Oct. 27 with plans to liquidate all of its 66 stores.
Sharper Image Corp, Wickes Furniture, Bombay Co. and Shoe Pavilion have filed for bankruptcy and liquidated their stores within the past year. Whitehall Jewelers, Linens 'n Things and Shoe Pavilion are undergoing GOB sales.
In past years, troubled retailers could file for bankruptcy protection from creditors, exit bad store leases, and re-emerge a smaller, more profitable operation. Bankruptcies such as Macy's and Barneys lasted over two years. The bankruptcy of McCrory Corp. in the nineties lasted five years before the five and dime chain liquidated.
Besides credit availability, a Chicago Tribune article noted a lack of potential buyers is increasing liquidations. Private-equity firms are no longer flush with cash to buy retailers for their real estate or turnaround prospects. Many bigger chains that had been obvious buyers in the past are cutting back expansion plans. Credit terms from vendors are also very tight.
"The best retailers are monitoring the health of their vendors and good vendors are looking hard at the creditworthiness of retailers," Howard Brod Brownstein, principal at Hachman Hays Brownstein Inc. who oversaw Montgomery Ward's bankruptcy in 2000, told the Trib. "Everybody's at Defcon 3."
Discussion Questions: Is there something beyond the credit crunch that has led to the increase in liquidations at retail? Has it become tougher for retailers to turn around? How does this greater liquidation risk change retail strategies?