Korvettes Inc., the troubled discount chain announced today that in an attempt to stay in business it will sell all its inventory to a special "retail operator" and use the $25 million in proceeds to pay off its suppliers.
The chain, which already has closed all its stores in order to "take inventory," will reopen only those in the New York area. The four Korvettes stores in the Washington area closed last Friday and will not reopen. The merchandise in the stores will be shipped to New York, according to officials of Korvettes.
Joseph A. Ris, chairman of Korvettes, said at a press conference that Korvettes' inventory had been sold to Jerry Schottenstein, a retail operator, who will sell the merchandise in Korvettes remaining stores, using Korvettes' employes.
Korvettes last week paid off its major institutional lenders -- three banks and Prudential Insurance Co. After weeks of jousting with lenders, the chain's parent, the Agache Willot Group of France, gave them $10 million immediately and will pay them $12 million over the next several months. In addition, the lenders kept $6 million in Korvettes' deposits they seized after Agache-Wilcot cancelled an agreement Ris had reached with the lenders.
Korvettes owed the banks -- Chase Manhattan, Bankers Trust and Manufactures Hanover -- and Prudential $55 million. In return for the total $28 million payout, the lenders forgave the rest of the loan.
But Korvettes still is stuck with about $30 million in debts to its suppliers. The company plans to use the $25 million it receives from Schottenstein, plus money it expects from the sale of its leaseholds in locations around the United States to pay off the suppliers, maintain some cash flow between now and Christmas and pay employe wages and tax withholding.
Last Friday, employes at Korvettes' Langley Park store were shocked when the manager announced that the store was closing immediately, that there would be no paychecks and that employes could take merchandise with them in lieu of a paycheck.
The announcement was made about 4 p.m., employes reported.
Other Korvettes stores are shuttered today as well as auditors pore over inventories.
A spokesman for Korvettes said that the company anticipates Schottenstein will have sold off all the Korvettes' inventory by Christmas.
Ris called the Korvettes plan imaginative, and said he devised it because the company had a "moral obligation" to pay off its suppliers.
He said he told officials of Agache Willot -- which last week said it made a mistake buying Korvettes and wants to sell it -- that the only way he would remain as chairman is if he were given authority to pay the company's vendors.
Ris resigned early last month after Agache-Willot cancelled an arrangement he had reached with the bankers, but Agache-Willot lured him back several days later, claiming the whole affair was a misunderstanding. The banks reportedly had threatened to push Korvettes into a bankruptcy proceeding if Agache-Willot did not rehire Ris and come up with an acceptable repayment plan.
Korvettes, which once had 50 stores nationwide, was down to 29 outlets by Friday and plans to operate about 15 stores when the chain reopens. A number of retailers, including Alexander's and Two Guys, have expresses interest in buying some of the Korvettes leases, Korvettes officials said.