Troubled Venture faces its toughest turnaround

Discount Store News, Feb 9, 1998 by Richard Halverson

O'FALLON, MO. -- Given that factors stopped guaranteeing payment for shipments to Venture Stores last fall and the continued free falls in comp store sales, its Chapter 11 bankruptcy Jan. 20 came as no surprise.

The question now is whether Venture will liquidate its remaining stores or attempt to reorganize around a small core of surviving stores. Many in the industry consider liquidation the most likely outcome.

Last year, Venture sold 20 stores to Kmart, including 15 in Texas, slashing store count to 93. Also last year, Venture sold the leases (and in a few cases, the real estate) for 49 stores to Kimco Realty. And in 1996, Venture had sold the leases and/or real estate for 16 other units.

Even before the filing, Venture was shopping blocks of stores around to other retailers. But most balked at buying poor locations packaged along with good stores. Those include stores in Venture's home market of St. Louis and also in Kansas, another of its core markets, along with Chicago.

Venture no longer owns any of its stores. But it controls leases on about 28 locations, and those leases can be sold.

In announcing the bankruptcy filing, Venture said it will likely close some stores immediately (reportedly around 10) after it reviews the profitability of each unit.

The 49 stores Venture sold to Kimco are an all-or-nothing proposition, said Peter Chapman, publisher of Venture Stores Bankruptcy News, a special newsletter published by Bankruptcy Creditor's Service, Trenton, N.J.

Those 49 are on a single master lease, and Venture either must walk away from all 49 in bankruptcy or keep all 49, Chapman said. Under terms of the master lease, Venture can't cherry pick which stores it wants to keep open.

Kimco also has the right of first refusal for all the remaining stores that Venture could sell.

Venture has the exclusive right to file its own plan of reorganization until May 20. However, mitigating against a reorganization is the fact that Venture already has gone through a bruising overhaul--from full-line discount store to a new concept called family value retailer, a process it began in 1995. On the other hand, much of that previous reorganization effort includes work that normally would be done in bankruptcy.

Two reorganizations in two years, however, is asking a lot, especially since Venture is handicapped by the lack of a chief merchandiser. Jim Ferstl, vp of merchandising, departed last month, and ceo Robert Wildrick has to wrestle with day-to-day tasks of replenishing empty shelves as well as attempting either to assure his chain's survival or to liquidate it in an orderly fashion.

Another major factor working against Venture's survival is its Fiscal Year 2000 problem. In its third quarter 1997 10-Q filing with the SEC, Venture said it wouldn't even be finished studying the problem of converting its computer systems to accommodate the date change until the end of the fiscal year. The company estimated it might cost as much as $8 million to fix its software problems--and nonessential resources are in short supply these days.

In announcing Venture's bankruptcy filing, Wildrick said the company needs time to complete the repositioning and to evaluate other options. Wildrick declined to specify what those options might be.

On Jan. 22, the New York Stock Exchange officially halted trading in Venture stock and moved to delist the company. The trading suspension was academic since Venture stock hadn't traded for six days anyway, and last traded Jan. 16 at 37 1/2 cents.

Standard & Poor's immediately cut its rating on Venture debt issues to D from cc, ccc and ccc-.

In other plans, Venture said it will slash expenses by $8 million to $10 million, in part by headquarters consolidation. The announcement said the reorganization would have no immediate impact on headquarters staffing, but firings are likely.

During reorganization, Venture will operate on a $190 million debtor-in -possession credit line from BT Commercial. It is a rollover from the pre-filing credit line from the same group of banks, Chapman said.

Venture said its efforts have been hampered by merchandise shipment problems from vendors worried about constant rumors and speculation about the company's future.

Problems with vendors often left stores out of stock on advertised items, undermining sales and consumer confidence.

"We have fought for longer than anyone thought we could to complete Venture's reposition, retain value for shareholders and give the company a chance for success," Wildrick said in the announcement.

"At this point, however, we need the time-out afforded by a Chapter 11 reorganization to cut expenses, rebuild sales and customer confidence, and get our merchandise mix balanced to achieve profitability."

Wildrick blamed "external factors" for hampering the company's repositioning efforts. In the first day of he#rings in bankruptcy court, cfo Russell Solt said the recent bankruptcy filing of Montgomery Ward had led to restriction of Venture's trade credit, shipping delays, insufficient inventory levels and aggressive markdowns to move merchandise.