Yesterday’s Shane and Co. Chapter 11 filing had been rumored for at least six months, so it can’t be much of a shock. Interestingly, it’s being discussed as a true reorganization, and the company has said it does not plan to liquidate; its attorney even told the media it hopes to be out of bankruptcy by the end of the year. As we’ve noted, it’s harder for retailers to truly reorganize today with the change in the bankruptcy laws and general economic climate. Still, the company has secured DIP financing and seems determined to make a go of it.
In papers with its filing (PDF), the company gave the following as reasons for its action…
The single largest factor causing the bankruptcy filing by the Debtor is the precipitous decline in retail sales, particularly in luxury goods, driven by the overall economic Recession … In 2008, the Company’s sales during this period were off 32% from 2007’s numbers, itself a slow holiday season …
In 2004, the Company first reached $150 million in annual sales. By 2006, its total sales were $265 million. In 2007, sales were $275 million. In contrast, in 2008, the Company projects total sales of only $207 to $210 million. …
[B]eginning in 2006, the Company pursued expansion opportunities to open five new stores in four new markets which the Company believed had significant promise. The market downturn and other factors made opening stores in certain of these locations ill-advised. The Company opened three of the five planned stores in 2007, but in May of 2008, closed one of those three. The Company elected never to open two of the five. The Company is still left with residual liability under these leases.
Also a problem for the company: An inventory management system whose costs spiraled out of control and took too long to implement. It also created Shane Co (Thailand) to take advantage of low labor costs and craftsmanship in Thailand. While the papers said Shane still considers that “a prudent investment,” it also notes “the costs of construction of the facility and other start-up costs, totaling approximately $3.8 million over the past two years, has been a further drain on capital.”
According to the papers, the company has been working with consultants on options since late 2007.
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