Discount veteran Ames to liquidate after 44 yrs - Ames Department Stores ends Chapter 11 bankruptcy with final liquidation - Statistical Data Included

DSN Retailing Today, August 26, 2002 by Mike Duff

ROCKY HILL, CONN. -- After more than 40 years as a discount retailer, Ames Department Stores is closing up shop and liquidating its operations.

In a statement issued Aug. 14, chairman and ceo Joe Ettore said, "Continued softness in sales, combined with tightening terms and slower shipments from our suppliers, have reduced our funds availability below critical levels. Management has resolved to pursue an orderly liquidation of the company now, rather than continue along a path that would lead Ames to default on its lending agreements."

Although it already had arranged debtor-in-possession financing when it filed for Chapter 11 bankruptcy a year ago, Ames had sought more cash in the weeks leading up to the decision to liquidate. On June 19, Ames received bankruptcy court approval to amend its debtor-in-possession credit agreements with GE Capital and Kimco Realty for the sale and leaseback of certain properties. By selling real estate assets to Kimco, the retailer received an infusion of $25 million in additional available cash. At the time, cfo Rolando de Aguiar told DSN Retailing Today that the new credit arrangement would position the company to initiate back-to-school and holiday buying. Once that process had begun, though, the challenge was to get customers into the stores.

"We need to make sure the company performs," de Aguiar said at the time. "The focus is on performance."

Shortly thereafter, however, Ames was unable to secure additional funding and was subsequently pressured by its creditors to liquidate. Mark Miller, a William Blair & Co. analyst, said in a report that the Ames situation may reflect on the prospects of other retailers. "We believe that the decision of Ames' creditors' committee to force liquidation could be indicative of the reticence of vendors and lenders to extend credit to other troubled retailers, notably Kmart, that will face rising levels of competition from much stronger rivals."

Once it became apparent that creditors would not extend Ames financing arrangements, the decision to liquidate the retailer's remaining assets was one made at Ames' headquarters rather than by its creditors or vendors, according to spokeswoman Mary McCabe. "It was more us to be honest," she said. "Back-to-school wasn't happening, and some of the broadcast events were not coming in. It was more us pulling the plug at that point."

Hourly employees and distribution center workers will continue to be employed during the liquidation process, however, the majority of headquarters personnel, or roughly 420 employees, were terminated Aug. 14. "A sharply reduced number of positions will be needed to help facilitate the liquidation process," the company stated.

The impact of the retailer's closing will be felt particularly in the rural communities, where jobs at Ames have been important. Ames' closings will doubly penalize many hourly associates, as Ames' core customer comes from a family with a total income of $35,000 or less. As Et-tore has frequently pointed out, the Ames associate is the core customer.

One state was anticipating the effect of Ames closings just hours after the company broke the news that it would liquidate. In Pennsylvania, Gov. Mark Schweiker announced that he had ordered Labor and Industry Secretary Johnny Butler to develop a range of job-assistance services for Ames associates facing layoffs. Ames' 67 Pennsylvania-based stores employ 3,600 people.

"While this is a difficult time for Ames employees and their families, the Commonwealth is taking immediate steps to provide a complete range of job and related services to those laid off," Butler said.

Ames entered Chapter 11 bankruptcy protection in August of last year, and vendors were well aware of its financial woes even as the company began to falter. But the final act played out quickly.

On Sunday, Aug. 11, vendors voiced concerns that Ames was in trouble, and the situation was a hot--albeit troubling--topic among attendees of the Hardware Show in Chicago. Information gathered by one vendor contacted by DSN Retailing Today led him to characterize the company as "distressed."

A source with another vendor said that its factor, which had long since stopped backing payments, had called to recommend that no more goods be shipped to Ames. The source added that Ames executives themselves had acknowledged at the time that the retailer's position was precarious.

Early the next day, another vendor source close to DSN Retailing Today said, "We no longer have any confidence in their ability to recover."

At that stage, all vendors contacted by DSN Retailing Today said they were no longer shipping product to the retailer.

The vendor community had become acutely concerned about Ames by the week of Aug. 12, but many had come to recognize some weeks earlier that the retailer was getting into narrower financial circumstances and had cut back their Ames exposure. "They were burning through the DIP cash," said one supplier on Aug. 13. "They've been paying up like clock work, but I'm afraid that's going to end."