Big Discounter Files For Chapter 11
Apr. 27, 1990
HARTFORD, Conn. (AP) _ Suppliers who helped pushed troubled Ames Department Stores Inc. into bankruptcy welcomed the discounter's Chapter 11 filing, saying it would provide the security needed to keep goods on store shelves.
''The air has been cleared as far as where the money will come from,'' said Robert Luehrs, president of Chic Jeans.
Ames filed for protection from creditors under Chapter 11 of the federal Bankruptcy Code late Wednesday, largely because of its inability to digest the Zayre chain it bought two years ago. The purchase doubled Ames' size and turned it overnight from a little-known New England-based chain to the nation's fourth-largest discounter.
The bankruptcy filing will allow Ames to reorganize its business and pay suppliers under a new credit arrangement.
In its filing, Ames listed a total of $1.44 billion in liabilities and $1.66 billion in assets.
It listed the company's biggest creditor as Societe Generale Financial Corp., which is owed just over $14 million. Others listed among the top 20 creditors include Thermos Co. at $5.2 million owed; Rubbermaid Inc., $4.5 million; J.P. Stevens, $3.2 million, and Fisher Price, $2.9 million.
Ironically, it was skittishness on the part of Ames' suppliers that pushed the company to file for protection from its creditors.
Several suppliers began cutting off shipments to Ames last month after the company announced it lost an estimated $228 million in the fiscal year that ended Jan. 27. That news, coupled with an apprehensive retail climate following the January bankruptcy filing by Campeau Corp.'s U.S. retailers, put suppliers into a near-panic.
''It's unprecedented in the history of retailing that suppliers cut you off like that, but when you have Numero Uno go into receivership ... it makes people very nervous,'' said Alan Millstein, publisher of a monthly newsletter for retailers and manufacturers.
Ames' stock rebounded slightly after Thursday's announcement, closing at $1.62 1/2 a share on the New York Stock Exchange, up 12 1/2 cents. Ames stock had been trading at nearly $30 a share in late 1987, but dipped to $9 a share in early January as Ames' troubles mounted after a dismal Christmas season.
Under the bankruptcy filing, Chemical Bank has agreed to lend the Ames chain $250 million, with use of the money under control of the bankruptcy court. The money will allow Ames to continue operations and pay for merchandise shipments as it prepares it reorganization plan.
Suppliers said the new credit arrangement offers them a measure of security they didn't have before the filing.
The Gitano Group Inc., a sportswear supplier that is owed $5.3 million, said it plans to meet with Ames to talk about resuming shipments now that they have some assurance of payment. Gitano stopped shipments about four weeks ago.
Analysts were unanimous in blaming Ames' downward spiral on its $788 million acquisition of the 392-store Zayre chain in October 1988.
''This had to happen,'' said Howard Davidowitz, chairman of a New York- based retail financial consulting firm. ''They took on a company that had been sinking and the sinking just accelerated. They couldn't save themselves.''
The Zayre stores had been known for frequent promotions, heavy advertising and discounted fashion items. Ames, in contrast, stocks more traditional merchandise and runs fewer promotions.
Ames has since closed 90 Zayre stores and converted others to the Ames name.
Further, the company's attempts to quickly merge Ames and Zayre computer systems resulted in some glitches that delayed payments to suppliers, which led some suppliers to cut off the chain's credit.
Douglas Ewing, Ames vice president for investor relations, said a dismal Christmas season at Zayre stores after a disappointing year pushed Ames over the edge.
''I think the fourth-quarter results, coupled with the sales shortfall overall, did it for us,'' Ewing said.
Ewing said Ames will continue normal operations while it works out a payment plan with its creditors. He said the chain has no immediate plan to cut staff or close additional stores, but would not speculate on what will happen under the restructuring.
Founded in 1958, Ames operates more than 600 stores in 20 states and has about 55,000 employees.