Burdened by debt and running out of cash, Gottschalks Inc. filed for bankruptcy protection today.
The Fresno department store chain, a mainstay of the Central Valley for decades, said it will stay open and plans to use the Chapter 11 filing to seek a buyer for the business. But retailing consultants said they'd be surprised if anyone came forward in such a lousy business climate. Court filings show that, under an agreement with lenders, Gottschalks has until March 24 to find a buyer.
Gottschalks has been losing money the past couple of years and warned in November that it was in danger of running out of cash by the end of January.
A rescue plan, in which Gottschalks would receive $30 million from a Chinese merchant, fell apart last month after a new appraisal found that Gottschalks' inventory and other assets were worth less than previously believed, according to documents filed with a bankruptcy court in Delaware. Because of the appraisal, Gottschalks' lead lender, GE Capital, said it would curtail the retailer's line of credit. That essentially killed the deal with the Chinese group, Everbright Development Overseas.
A new round of talks with the Chinese firm and El Corte Ingles, a Spanish retailer that owns 15 percent of Gottschalks, failed to bring resolution, according to court records.
Gottschalks has four stores in the four-county Sacramento area. All remain open.
Gottschalks board member Joseph Penbera said bankruptcy could have been avoided if lenders had been more forthcoming. He's angry that the federal government's bailout hasn't loosened the lending market like it was supposed to.
"A bad day for Fresno," said Penbera, a Fresno economist. "A sad day for a lot of communities if we don't save this. ... We are committed, totally committed, to saving the 5,000 jobs."
As part of the bankruptcy, Gottschalks has obtained $125 million in fresh financing from a group of lenders led by GE Capital, enabling it "to operate on a normalized basis as we conduct the sales process," Chairman and Chief Executive Jim Famalette said in a press release. Despite the tightness in the credit market, bankrupt companies can normally get new financing because the bankruptcy laws give those lenders special status in terms of getting their loans repaid.
Famalette told the Fresno Bee that many of Gottschalks' vendors have said they'll continue supplying the stores with merchandise.
"We hope they can navigate through this process and can contniue to be one of our customers," said Ron Parham, a vice president at Columbia Sportswear, a Gottschalks vendor. It's owed $277,000.
Jeff Green, a retail consultant in Mill Valley, said whoever buys Gottschalks will almost certainly close some of its 59 stores. But he said a purchase is unlikely.
"If it's going to be a sale, it's going to be a fire sale," he said. "I question if they'll even be able to make a deal."
But Penbera said, "We feel there is real value in Gottschalks going forward. ... Somebody could pick this company up relatively cheaply and have $600 million in sales."
By closing some of the laggard locations, a buyer would have "a core group of stores, maybe 50 stores, that are good-performing stores," he said.
Call The Bee's Dale Kasler, (916) 321-1066
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