Weiner's files for Chapter 11 - Weiner's Stores Inc - Brief Article

DSN Retailing Today, Nov 6, 2000 by Debbie Howell

HOUSTON, -- Plummeting sales of national brand apparel and footwear, once the lifeblood for Weiner's, forced the retailer to file for Chapter 11 bankruptcy protection last month. Nike and Levi's, brands that the chain heavily relied upon in its soft lines mix, have seen significant declines in sales this year at Weiner's.

Although the Houston-based retailer was working to adapt to shifts in customer preferences, the changes came too late to counteract mounting losses. Sales dropped 13.7% in the first half of the year, resulting in a net loss of $5.4 million. "The drop occurred at the same time we hit some peaks in our borrowing levels, and there was not enough ability to buy merchandise for the holiday season," said Ray Miller, chairman and ceo.

Besides gaining approval for $35 million in debtor-in-possession financing from a Delaware bankruptcy court, Weiner's will close 44 of its 141 stores by yearend in an effort to regain financial stability. These stores are either low performers or located in unprofitable markets in Texas, Louisiana and Arkansas. Alabama and Mississippi stores will remain open.

Ironically, the chains aggressive expansion led in part to Weiner's financial troubles, president Joseph Kassa said. The company opened 10 stores this year and entered three new markets. Four of the new stores were in Little Rock, Ark., a state that Weiner's has decided to exit.

Despite the chain's tenuous future, Miller said plans to launch a new format next spring with expanded hard lines merchandise should offset soft apparel sales and help revive Weiner's. Stores will be renamed Weiner's Plus, emphasizing expanded product categories in toys, electronics, small appliances, furniture, bed and bath, housewares and home fashions.

"Joe has been working on this for eight or nine months," Miller said. "It was unfortunate the sales declines in summer and the cash crunch didn't allow us to get there naturally."

Whereas Weiner's sold only apparel three years ago, the company began testing hard lines merchandise about 18 months ago in response to soft sales of Levi's jeans, athletic apparel and footwear, which at one time accounted for 35% of the company's business. Hard lines will double in size to about 20% of the Weiner's store mix.

While not abandoning Nike and Levi, the retailer will cut back on these and other low-performing soft lines brands. An emphasis on streetwear over activewear is planned, with a heightened focus on the three strongest apparel departments--young men's, juniors and children's. At the rear of the stores, 14 gondolas will be devoted to hard lines categories, including a 24-ft. wall for toys priced between $1.99 and $5.99. Currently, these products are not clearly delineated in separate hard lines departments.

The store-remodeling program will begin in February and is expected to take up to 10 weeks, Miller said. So far, the chain's core customer, an inner-city resident with an average household income of $30,000, has responded favorably to the hard lines categories.

"Sales of home products are up 60% this year, and toys and electronics are up approximately 40%. Our customers are telling us what they want, and the new Weiner's product mix will meet their needs and expectations," said Miller.

John Lydecker, manager of a Manhattan boutique that specializes in value investing and distressed and bankrupt companies, has followed Weiner's for several years. He said the market Weiner's targets is viable, but one that isn't well insulated from competition, especially against the low-price tactics of discounters such as Wal-Mart. And the chain's strategy of broadening its mix may not provide salvation, given the company once before had hard lines categories that it exited to focus on apparel.

"I've seen a lot of retailers try to make similar moves, and I would venture that the minority of them are successful," Lydecker said of the chain's latest strategy, shifting emphasis slightly away from apparel.

Weiner's also has a history of turmoil, having emerged from a previous bankruptcy in 1997. Former ceo Herb Douglas, who led Weiner's out of the 1995 bankruptcy by creating the apparel-only format, retired this past June amid plunging sales. Miller and Kassa, both top executives at Weiner's, were subsequently promoted.

Kassa admits mistakes were made in not responding fast enough to fashion trends, but he insists that Weiner's is commited to serving its niche of the low-income, ethnic shopper. "We truly believe in our philosophy that the urban customer is very underserved, and that they want first-quality goods. No one really is doing that in the marketplace," said Kassa.