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BELLINGHAM, Wash. -- Brown & Cole Stores, LLC, which Tuesday filed a Chapter 11 petition in federal bankruptcy court in Seattle, said yesterday it plans to keep at least 23 of its 27 stores open, and is arranging new financing to ensure stable operations, and to continue its recent strong trends in sales and customer growth. It will close four stores if buyers for them aren't found.
The retailer, jointly owned by Seattle-based regional wholesaler Associated Grocers, Inc. (AG) and corporate parent Brown & Cole, Inc. stressed that neither of the two affiliated companies is filing for bankruptcy protection. It will be business as usual for the stores and their customers, according to Jim Austin of Karr Tuttle Campbell, general legal counsel for the company. The company said it plans to continue aggressive marketing campaigns into the beginning of 2007 and beyond.
The retailer is hoping to emerge from the process within a year as a stronger enterprise.
"A lot of good people have worked very hard to fend this off, but we just couldn't get ahead of the adverse factors that have impacted us," said Craig Cole, Brown & Cole's president. "I'm grateful for the steadfast support of our employees and customers. Our main goal now is to make this process invisible to shoppers and as painless as possible for employees and our suppliers. We certainly are going to go to bat for our employees in trying to save family wage jobs and benefits."
Austin cited three main factors that resulted in the filing: the discontinuance of dividends on its ownership investment in the company's wholesaler, Associated Grocers; spiraling healthcare costs, and Wal-Mart's onslaught in Washington.
Brown & Cole is AG's largest investor, with a 25 percent stake in the company, and is the wholesaler's second largest customer. The retailer had been receiving regular dividends and share redemption payments as a significant part of its income stream, as it had been receiving over $2 million each year from the wholesaler. AG stopped cash dividend and share redemption payments after 1999, and had not reinstituted the payment of cash dividends to its retailer-shareholders, even though it has since improved its financial condition.
In addition, Brown & Cole's healthcare costs nearly doubled over a two to three year period, further impacting its cash flow, the company said.
The tipping point came with Wal-Mart's saturation of markets in Washington, forcing Brown & Cole to close four large stores in the Tri-Cities and Arlington areas. Even though the stores are closed, the company has continued to pay rent on the facilities and has been unable to find replacement tenants, which put an additional burden on finances.
"We pay wages that are 50 percent higher than Wal-Mart, and make health care payments on 95 percent of our workers, more than double Wal-Mart's commitment," said Cole. "It's hard to remain profitable competing with a low-wage, non-union operator like that, but fixing our financial problems on the backs of our employees was never an option that we were willing to pursue. Our sales and customer growth over the last six months have been strong, and most of our 27 stores are profitable. We have to keep our prices down in order to remain competitive, so our overall cost structure, especially with high lease expense on closed stores, needs reworking."
Cole said that competing with Wal-Mart for customers is very doable, except when it over-stores a market. He asserted that Wal-Mart's long-term strategy has been to oversaturate markets with surplus retail capacity so that smaller companies will be driven out.
"Wal-Mart's pattern is to flood a market with supply of too much retail space in relation to demand," said Cole. "That is happening all over the country, and the small and regional operators are typically the fallout, leaving mostly global and national operators in the market."
Wal-Mart has 44 stores in the state and has announced plans for several more.
The four stores Brown & Cole expects to close unless sold are its Sedro Woolley Market Place, Lynden Cost Cutter, and Food Pavilions in Yakima and Sunnyside.