Bradlees to emerge from Ch. 11 later this summer

Discount Store News, March 23, 1998 by Mike Duff

BRAINTREE, MASS. -- Bradlees plans to make its initial move to emerge from Chapter 11 protection during the first week of April, which should take the company out of bankruptcy sometime during the summer.

Peter Thorner, chairman and ceo for Bradlees, told DSN that negotiations with the company's creditors over management plans indicate that the actual emergence will probably be in July or August.

Prime regional competitor Caldor plans to shed Chapter 11 protection during the spring season.

Thorner said the move would not entail any significant changes in its current strategy nor does it signal significant efforts to downsize the company.

"There are a couple of stores we're considering closing," he said. "It's not a question of their under performance but how they fit into our strategy. We modified our strategy substantially in early 1997 and have been working phenomenally since to improve sales. We've been able to gauge our February and March sales, and we're ahead of our plan by a substantial amount. As we say in the trade: 'If it's not broke don't fix it.'"

Under bankruptcy protection, Bradlees initially tried to upscale its merchandise and make operational changes such as dropping layaway to appeal to more affluent customers and position itself between discounters and department stores. Not only did the move not attract new shoppers, but it drove away existing customers who were subject to "stickershock," Thorner said. When he was promoted from president and chief operating officer on Christmas Eve in 1996, Thorner instituted operational cost-cutting measures and returned Bradlees to a discount orientation, although he did try to retain some of the better quality apparel that was a focal point of the former regime's upscaling efforts.

Thorner said that recent Bradlees efforts have put the business on a better financial and operational footing that will carry over and make Bradlees a more viable competitor. "It's not yet audited, but we probably have a 150-base-point increase in margin. We will make or exceed our business plan for '97. We brought back layaway. We got back to a 10% discount on the first day people get our credit card. We took $100 million out of overhead exclusive of store closings. And we have been going gangbusters for the first two months of 1998, better than I expected," he asserted.

Stronger financial and operational positions are only two things Bradlees has going for it.

"Any company that wants to come out of bankruptcy can't have a better economy than they have right now," said Eric Beder, an analyst for H.D. Brous, Great Neck, N.Y.

Still, analysts note that Bradlees is emerging into a competitive maelstrom, They predict that Target's arrival in the Northeast will have the greatest impact on Bradlees and Caldor because both have a relatively high-end merchandising assortment, particularly in apparel. Caldor already is dealing with Target in a few markets, but Bradlees so far is clear of the Dayton Hudson-owned discounter--for now.

"Bradlees is a high-class chain. But does Bradlees have the financial wherewithal to compete if Target decides to really go into New Jersey and Massachusetts? I think Target can wipe [Bradlees] out because it has the financial wherewithal to do it," Beder said.

Bradlees needs to find a niche to survive, observers have noted. Although errors during the bankruptcy period hurt the company, the errors happened after it went into bankruptcy. Essentially, Bradlees needs a substantial transformation of the basic operations.

"What has really changed?" asked Sid Doolittle, a partner for McMillan/Doolittle, Chicago. "That's my question. I don't have an answer. Is the customer going to flock back into Bradlees? What makes [Bradlees] more competitive?"

In studying regional discounters that have emerged from bankruptcy, Doolittle concluded, "It's a mine field, and there are a lot of bodies out there."

Walter Loeb of Loeb Associates, New York, doesn't think that room exists for three national and three regional chains in the Northeast. Ames has staked a claim for lower-income consumers.

Loeb has come to a conclusion about Caldor and Bradlees. "The two companies should merge," he said. "It has been discussed. I think a combined company would have more strength. It would be a stronger competitor with more leverage."