Herman's set to retrench: will shut down 132 stores - Herman's Sporting Goods Inc

Discount Store News, May 3, 1993

CARTERET, N.J. -- As expected, the new owners of Herman's World of Sporting Goods said they will undertake a major restructuring in a bid to emerge from Chapter 11 bankruptcy.

In the most significant step toward restoring profitability, Herman's will retrench to a core market, the Boston to Washington, D. C. corridor, from its 40-state operating territory that extends as far west as Minneapolis, closing as many as 132 of its 253 stores.

Other steps will be: * Reducing operating expense ratio by four percentage points; * Streamlining management; * Revamping merchandise, inventory and information systems.

Herman's has petitioned bankruptcy court for permission to sell or close all stores west of Pennsylvania and south of Virginia, or 132 units. Judicial action on Herman's petition, set to be heard April 7, remains pending, but Herman's expects to close--or self--those stores by about June 30.

However, Herman's might decide to keep profitable stores in Chicago and Minneapolis, said Alfred A. Fasola Jr., chief executive officer and president of the Taggart/Fasola Group, a New Jersey-based management group that also is one of the owners.

The main investors in the acquisition of Herman's were Whitman Heffernan Rehein & Co., and Carl Marks & Co., both New York investment banking firms. They acquired Herman's March 12 from Isosceles PLC, a British holding company, and filed Chapter 11 three days later.

"Based on our assessment of the increasingly competitive sporting goods market, we have concluded that Herman's can no longer afford to fight a two-front war," Fasola said. "A poorly executed expansion plan has left Hennan's spread too thinly across the United States and with too few resources to compete effectively."

Over-expansion saddled Herman's with a high cost structure, inefficient distribution, ineffective marketing and advertising and poor inventory controls, Fasola said.

The new owners also assumed $225.7 million in long term and trade debt.

Herman's will also attempt to chop four points off its expense ratio during the fiscal year that begins May 1. Expenses consumed 40.3 cents out of every dollar of revenue during the fiscal year that ends April 30, said Martin Burke, new president and ceo. Herman's expects to reduce that to 36.1 cents in the new fiscal year, he said.

To reach that goal, Herman's will eliminate an undisclosed number of regional offices, lower handling costs and cut payrolls aggressively, Burke said. Herman's now employs 6,400.

Burke previously served as president and ceo of Conran's Habitat, a chain of home furnishing and furniture stores generating annual sales of about $100 million.

In the fiscal year just ending, Herman's lost $18.5 million on sales of $580 million. During the previous two years, Herman's lost a total of $30 million.

Purchase price for Herman's was $35 million in cash and a $10 million note, plus assumption of $225.7 million in long term and trade debt.

Left unsaid in Herman's announcement was anything about plans to open sporting goods megastores, as Sports Authority and Sportmart are doing. The average size of a Herman's store is 10,000 sq. ft., compared to about 40,000 sq. ft. for a superstore.

Under a previous owner, WR. Grace, Herman's briefly tested in the early '80s its own version of a superstore, but abandoned the idea.