Tech hifi files ch. 11 despite double-digit monthly sales gains

Discount Store News, April 30, 1984

RANDOLPH, Mass.--It was too little, too late.

Double-digit monthly sales gains resulting from Tech hifi's six-month-old "off-price" marketing and advertising posture couldn't save the chain from filing for Chapter 11 reorganization April 10th.

Company president Steven Mayes said the move came because of Tech's massive undercapitalization and was timed to avoid further "erosion" during the traditionally slack summer months.

In the meantime, the chain--once thought to be among the top two or three electronics retailers in the country--has been nearly halved within the past six months. With the additional closings of 14 stores with the bankruptcy filing, the chain has shut 31 units during the period, withdrawing Tech from Michigan, Ohio and North Carolina. Of the remaining 41 units, all are in a six-state region in the Northeast.

The chain has also shuttered its P.R.I.C.E. Mail Order division and announced plans to sell off a four-store North Carolina subsidiary.

Mayes projected that the 41 remaining stores, which he said are currently profitable, will produce about $41 million in volume during the fiscal year beginning next July. He said the chain's volume have been $56 million for 1982 fiscal year.

At last October's announcement of its off-price program, chairman Sandy Ruby estimated the company's then-72 units would produce $60 million in sales for the current fiscal year. No corrected estimates were supplied following the Chapter 11 filing.

The bankruptcy filing took few industry people by surprise, since Tech has been struggling to remain viable for more than two years. For the past year and a half, the company has operated voluntarily under a creditors' committee with its inventory and cash managed by a third party firm, Collateral Management Inc. (CMI).

"It was the smartest thing they could do," confided the president of one large noncompeting CE chain. "They were trying to pay everyone back 100^ on the dollar [over a five-year plan] and there was no way they could do it--not after taking markdowns of 20% and higher."

Under the arrangement with CMI, which was requested by Tech's vendors, the chain was able to continue being supplied, with daily dales paying for daily inventory on a cash basis.

CMI's service requires the retailer to provide full financial and inventory reports and to turn over all sales revenues. CMI would then subtract the actual cost of merchandise sold, placing that sum in a trust account for immediate payment to vendors. The remaining amount would then be transferred back to Tech's general account.

In an April 12th hearing, the bankruptcy court approved a continuation of that practice.

Meanwhile, the previously informal creditors' committee was expected to win official sanction by the court in a meeting scheduled for April 26th between Tech, its creditors and the U.S. Trustee, the administrative arm of the court. Federal officials said one or two aditional members of the committee might be added in order to "bring in some fresh blood" to the committee.

The chain's "off-price" program will reportedly stay in place--at least for now. In his Chapter 11 announcement, Mayes indicated a continuing support for the program.

But, although increasing volume for the chain, the program squeezed margins, resulting both from markdowns and the stores' bent toward lower-end, more promotional merchandise.

Even with its added volume and promotional stance, however, Tech's discounter image sufferedc from vague pricing often bettered by beat-any-price competitors.