RoomStores files for bankruptcy; warns of layoffs, closings
The RoomStore furniture chain has filed for bankruptcy protection as company officials project the longtime Phoenix retailer will lose about $2 million this year.
In a petition for Chapter 11 reorganization filed in U.S. Bankruptcy Court in Arizona on Friday, officials with The RoomStores of Phoenix LLC blamed losses on spillover from the 2008 housing crash and increased competition among furniture retailers.
"Even when the market began to improve, competition among furniture retailers in the same genre increased significantly and the Company could no longer generate the revenues it had accomplished in the past," executives said in their petition.
With its Chapter 11 filing, the company is asking the court to protect it from creditors as it tries to restructure.
Co-owner Alan Levitz said Monday that he hopes to avoid layoffs and store closures.
"There is hope, yes," Levitz said. "Employees may be subject to layoffs. I am saying there may be layoffs rather than there will be."
The company sent notices to employees last week warning of layoffs and store closures. A federal regulation requires employers with more than 100 workers to give 60-day notices of closures and layoffs.
Levitz did not specify what stores were slated for shuttering but advised in the letter that layoffs could begin in February.
Levitz said if planned promotional sales were successful and if executives were able to negotiate with creditors, the company could "retain its existing footprint." He also said the majority of customers waiting on orders will get them.
"We still have good relations with our vendors and we have incoming goods," Levitz said. "We expect to fill the majority of existing orders."
Stores will remain open, and business operations will continue as usual. Existing customers on credit plans should continue to make payments as usual.
The RoomStores, known for more than two decades for its marketing jingle, "We put it all together to save you more," launched in 1993 with two Phoenix stores. It currently operates 11 showrooms in Arizona, including nine in the Valley, one in Casa Grande and one in Prescott.
Company officials said sales revenues are expected to fall about $7 million this year, to $63 million, compared with $70.7 million in 2014. They said the company suffered a $476,000 loss last year, which "will quadruple because of the rapid margin decline," according to the bankruptcy documents.
Levitz was reluctant to name his primary competitors, saying he didn't want to give them any free publicity.
"The marketplace in Phoenix has become a lot more competitive in the past three years," he said. "We enjoyed a strong position in the marketplace 20 years prior to that."
Among several new furniture retailers in the Valley are two so-called "megastores," one in Glendale and one in Gilbert, owned by the Colorado-based American Furniture Warehouse chain. The 630,000-square-foot Gilbert store opened in 2014 and, according to its owner, pulled in $3.2 million in the first month.
Levitz said in the bankruptcy petition that he began to "entertain the possibility" of hiring a company to conduct a liquidation sale in the third quarter after "recognizing the immediate need to stem the losses, maintain cash flow and find a solution that would protect vendors and other creditors."
RoomStores officials said the company owes up to 5,000 creditors. The company estimated its assets include $8 million in furniture, $250,000 in accounts receivable and $325,000 in fixtures and equipment.
The company estimated it had debts ranging between $1 million and $10 million. The Arizona Republic is listed as the company's second-biggest unsecured creditor after a Chinese furniture-manufacturing company.
RoomStores said it owes The Republic $542,622.
Levitz said Monday that while employees are concerned about the future, they aren't letting it dampen their spirits.
"There was a potluck Christmas party today," he said. "That's somewhat appropriate. It's business as usual."
Christie Kerner, assistant director of Arizona State University's Center for Entrepreneurship at the W.P. Carey School of Business, said furniture retailers are being hit hard by a change in the way people shop.
New online businesses are disrupting traditional brick-and-mortar businesses by taking bites out of the market with low-cost, hassle-free purchase options, she said. Kerner pointed to a Phoenix-based mattress firm called Tuft and Needle, which is offering an alternative for people who don't want to shop at stores.
Kerner said the owners, who were not retailers, immersed themselves in the science of designing mattresses until they were able to offer them for sale online for thousands of dollars less than brand-name manufacturers.
"They decided to create one product and knock it out of the park," she said. "It's less about the hype and more about the innovation."
Kerner said the message for retailers is that they have to be nimble and must be innovative to capture market share.
Article from:- http://www.azcentral.com