Why Did Robbins Bros. Fail?

By Rob Bates -- JCK Online, 5/1/2009 2:00:00 AM

Robbins Bros.' recent Chapter 11 filing happened because the company expanded too much, too quickly, sources said.

After the chain was recapitalized in 2004, partly by investment firm Weston Presidio, it went from seven stores to 16 in about four years, opening new markets in Dallas, Chicago, and Houston. The goal was a 50-store chain, and the openings took place rapidly because the company was worried competitors would steal its format. While the plan may have worked in more hospitable times, the company was soon hit by a triple whammy: the deteriorating Southern California economy, bad weather in Houston, and a mixed welcome for its Chicago stores.

There was also a changing of the guard. One Robbins brother—Skip—left to form A.A. Robbins in Seattle, while Steve Robbins remained as CEO. Day-to-day operations, however, were run by Andy Heyneman, a former vice president with Guitar Center. One vendor complained: “It wasn't the same old Skip and Steve anymore.”

Post Chapter 11, the plan is for the company to be owned almost entirely by Weston Presidio, although the U.S. trustee and company lenders have raised objections to this plan. If it goes through, the family will have no ownership, and Steve Robbins is not expected to continue with the company.

The company now wantsto revive itself, but it's looking at a vastly changed land-scape. As one former insider notes: “One of the key ingredients to Robbins Bros.' success was its two-day sales training. There are a lot of trained people out there who know Robbins Bros. selling techniques and how they operate. That will make a second rollout more of a challenge.”

Could Finlay Hurt Zale?

Many are wondering how Finlay's for-tunes will affect Zale Corp. As part of its 2007 sale of the Bailey, Banks & Biddle chain to Finlay, Zale agreed to guarantee all Bailey leases in the event of a Finlay default.In its recent 10-Q filing with the Securities and Exchange Commission, Zale noted that “the maximum potential liability” for this is $71 million.

And while Finlay recently announced it would close some 40 stores, people at Zale say Finlay has not told them how many Bailey stores are involved and what Zale's liabilities are. Even in a worst-case scenario, however, Zale likely will not be liable for the full amount, as there may be some negotiating with landlords who don't want vacant stores.

Zale also alarmed many with a note on its 10-Q filing concerning its credit card arrangement with Citibank. Customers use Citibank cards to pay for approximately 40 percent of Zale purchases in the United States and 25 percent of purchases in Canada. But the 10-Q noted that Zale hasn't met the minimum sales threshold: “As a result, Citibank may require our U.S. subsidiary to pay a fee. … If we determine not to pay the additional fee, we have 180 days in which to move the private-label card program to another provider.”

Zale, currently in discussions with Citibank, notes that the bank has not sought to terminate its Zale agreement. But if it does, Zale warns it could have an “adverse impact on [its] business.”

Finlay's Boss Gets a Bonus

The controversy raging over CEO salaries has filtered down to the jewelry industry.

Arthur Reiner, CEO of Finlay, whose stock has languished, recently raised eyebrows with a new agreement with his company that provides him with a $1 million bonus, in exchange for forgoing a planned $2 million severance payout. The agreement gave Reiner two bonus payments of $500,000 each—the first on March 11, the second on April 6.