Shoe Pavilion, Inc., which filed for bankruptcy last week in California, is seeking court approval to close 71 of its 113 stores. According to documents filed in the U.S. Bankruptcy Court for the Central District of California, the off-pricer, based in Sherman Oaks, CA, said the bankruptcy was caused by significant operating losses incurred in 2007. It blamed its problems on the general poor state of the retail economy, but also said its rent was too high at many locations. The retailer also has “a number of stores which lose money and must be closed.” Finally, the borrowing-base formula under its credit line with Wells Fargo did not provide the company with sufficient borrowing flexibility.
After analyzing operations, the company has concluded that 46 of its stores are profitable, even at current rent levels and retail market conditions and will look to be retained by the company. Forty three are “clear money losers and will need to be closed in an expeditious manner.” Finally, there are 28 stores that would make sense for Shoe Pavilion to retain if it's able to get “meaningful rent concessions” from landlords but should be closed if concessions aren't available. As a result, Shoe Pavilion is seeking court approval to close 71 stores the “money losers” and those with high rent.
According to the filing, the combination of the cash from the sale of inventory from closed stores, the increase in inventory in retained stores resulting from the transfer of goods from closed stores, and the elimination of rent and other lease obligations will enable Shoe Pavilion “to become cash positive and have a stable business operation within a few months, even if there is no improvement in the retail economy.”
The company's lawyers added in the filing, “Once that occurs, the debtors believe they will have a viable business which can reorganize and emerge from Chapter 11.”
The bankruptcy filing listed $61 million in assets and between $25 million and $27 million. Vendors holding unsecured claims included New Balance, Asics, Adidas, Reebok, Clarks, Keds and Diesel.
In the first quarter ended March 29, Shoe Pavilion suffered a loss of $6.3 million against a loss of $1.2 million a year ago. Sales were down 8.5% to $32.5 million from $35.6 million. The sales decline stemmed from a tumble in comparable store sales of 16.5%, primarily due to the difficult retail environment, offset by the addition of 18 new stores. n 2007, Shoe Pavilion lost $16.3 million against a deficit of $18.2 million a year earlier. Revenues climbed to $152.6 million from $129.1 million due to the opening of 15 stores.
According to the bankruptcy filing, the top 20 unsecured creditors were:
1) Gilbert West Inc., Los Angeles, $456,001
2) New Balance, $324,302;
3) Bordan Shoe Co., $309,562;
4) Ad Marketing, Los Angeles, $253,046
5) Asics America, $196,166
6) Bozzolo Inc., $193,166
7) Grant Thornton, $161,217
8) Meynard Trading, Walham, MA, $161,040;
9) Arthur Gallagher, Glendale, CA, $142,732
10) AD Art Inc., $131,889
11) Adidas, $128,514
12) 121 Retail Venures, Beverly Hills, $127,272
13) Ellis Contracting, San Diego, $125,063
14) Clarks of England, $120,700;
15) Carrini, Edison, NJ, $120,360
16) Reebok, $117,583
17) Diesel USA, $111,212
18) Keds Corp., $100,165;
19) Blue Cross of California, $97,726
20) Naturalizer (Brown Shoe), $95,310
