Orchard Supply Hardware, the home- improvement chain from San Jose, filed for bankruptcy protection Monday, creating uncertainty for its stores in Sacramento and elsewhere.
The retailer's Chapter 11 bankruptcy filing includes a tentative deal to sell at least 60 of its 91 stores to rival Lowe's for $205 million.
Those stores haven't yet been identified. Garrick Brown, of Cassidy Turley real estate in Sacramento, said Lowe's likely will base its decision on store performance, adding, "I'm sure they would also take into consideration cannibalization."
Lowe's operates eight stores in greater Sacramento; Orchard has seven. There is some geographical overlap between the two companies. In Folsom, for instance, the two are within eight-tenths of a mile of each other.
The company "will be evaluating all Orchard locations to determine which are the most complementary to Lowe's strategy," said Lowe's spokeswoman Julie Yenichek.
Lowe's said it would run the Orchard stores as a separate business with the Orchard name. Its deal to buy Orchard stores is subject to winning a bankruptcy auction.
Founded in 1931, Orchard saw its annual sales drop by more than 20 percent during the recession. Sales had been improving in recent years, but Orchard remained burdened by "substantial debt" as a result of its 2011 spinoff from Sears, the company said in court papers.
The spinoff required huge dividend payments to Sears, according to Orchard.
Because of its debts, Orchard was plagued by "low in-stock levels, poor merchandising decisions, a lack of professional store management and significant declines in store investment and maintenance," said Orchard's chief financial officer, Chris Newman, in a court filing.
Orchard stores run about 44,000 square feet, including the outdoor nursery about one-third the size of a Lowe's or Home Depot.
"Orchard's neighborhood stores are a natural complement to Lowe's strengths in big-box retail," said Lowe's Chairman Robert Niblock in a press release.
That's good news for the real estate market, even if dozens of Orchard locations aren't snapped up by Lowe's.
"There is demand in the marketplace for this size range," Brown said. Grocers, discount clothiers and other retailers are interested in locations about that size, he said.
Call The Bee's Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler.