Richmond-based Best Products Inc., pummeled by declining sales, tight credit, shifting consumer tastes and heavy debt, filed for protection from creditors in Manhattan federal bankruptcy court yesterday.
The filing was the second within a week by an area catalogue showroom discounter. One week ago, Rockville-based W. Bell & Co., citing dwindling sales, also filed for bankruptcy court protection.
The privately held Best, one of the biggest catalogue showroom retailers in the United States and an important corporate presence in Richmond, blamed poor holiday sales and lack of support by its vendors and banks for its troubles.
Analysts said the firm also was dragged down by hefty debt from its $1.1 billion buyout in 1988 by the New York-based Adler & Shaykin investment firm and by decreasing consumer interest in its discount catalogue showroom concept, where shoppers fill out forms and wait for merchandise to be brought from stockrooms.
"We were forced to take this action as a result of the general economy decline, the tightening of both trade and bank credit and the substantial slowdown in consumer spending," said Stewart M. Kasen, president of Best, which had losses of $53 million last year on sales of $2.1 billion.
Best will continue operating, according to company executives, who said the company has enough cash to pay for new merchandise. There are no plans to close any of its 195 catalogue showrooms and 35 jewelry stores in 27 states, including its 15 stores in the Washington area -- a traditionally strong market for Best.
Best, which has more than 17,000 employees nationwide, also announced layoffs of at least 350 workers at all levels and salary freezes to cut annual operating expenses by $30 million. Seventy-five employees at Best's suburban Richmond headquarters will be let go. Since early 1989, more than 250 employees have been dismissed.
By giving it relief from banks and trade creditors, the bankruptcy filing should enable Best to better stock its stores in the future. The company said it had obtained a fresh $250 million financing package -- known as debtor-in-possession financing -- for just that purpose.
One of the key factors that hurt Best and W. Bell was the growth of competitive quick-service, high-volume discounters for electronic and jewelry items. Those stores enabled customers to obtain discount prices without having to wait for most merchandise.
"In one week with the bankruptcy filings of two major catalogue showroom operations, you have to wonder about the future of the industry," said Kenneth Gassman, retail analyst with Richmond-based Wheat First Securities Inc.
Yet Gassman said Nashville-based Service Merchandise Co., the biggest catalogue showroom retailer, remains in solid financial shape. The chain has five stores in the Washington area.
Heavy debt took its toll on Best, as it has on other retailers acquired in 1980s takeovers that found it impossible to meet interest payments as retail sales slowed.
The company said in its bankruptcy filing that it has assets and liabilities of $1.6 billion each. Its largest unsecured creditor is Rockefeller Group Capital Corp. at $96.9 million and its largest vendor with unsecured claims is Towson, Md.-based Black & Decker Corp. at $10.7 million.
About $220 million of Best's more than half a billion dollars in debt is held by Metropolitan Life Insurance Co. while $184 million is held by Manufacturers Hanover Trust Corp. of New York. According to banking sources, Richmond banks have no significant exposure to Best.
Best has been an important player in Richmond since it was founded in 1956 by Sydney and Francis Lewis, who started with a store on Marshall Street on the western edge of Richmond.
The Lewises, who are not active in the company's management but are on its board of directors, have been patrons of the arts and politics. They recently donated a multimillion-dollar contemporary art wing to the Virginia Museum of Fine Arts in Richmond.
In Washington, Sydney Lewis has served as the chairman of the board of the Smithsonian's Hirshhorn Museum and Sculpture Garden since 1987. The Lewises' artistic inclinations have shown up in the innovative designs for many Best stores nationwide and its eclectic headquarters in Richmond.
At the entrance of the award-winning building is an massive eagle from the old 42nd Street Airlines Terminal Building in New York. Inside a large collection of items, including an elevator from New York's RCA building, antique juke boxes and even a large Andy Warhol silk-screen portrait of Marilyn Monroe. Best officials said there were no plans to sell these potentially valuable items.
But they may have to sell the memorabilia and artworks if past financial performance continues. When it paid $1.1 billion for Best in 1988, Adler & Shaykin wrongly projected the firm would meet its expenses by increasing sales to $2.4 billion in 1990 and earnings to $59 million, allowing for capital improvements of $60 million.
Instead, the red ink continued to flow in 1990, and the company's losses since the buyout topped $100 million. The bankruptcy filing had been anticipated by retail observers as data about Best's poor sales performance surfaced recently.
In early December, Best officials began sending letters to suppliers predicting substantial sales declines and asking for patience on bills. But vendors already had begun demanding cash upfront for merchandise, which hurt Best during its most important retail season. The company was counting on better Christmas sales to improve its shaky financial picture, but sales for December declined at least 10 percent, company officials said.
On Thursday, Best officials said they were trying to avoid a bankruptcy filing, but debt-restructuring efforts fell through. Kasen said the filing "will remove the cloud of uncertainty that has been hanging over us and our vendor community for the past six months."
Best spokesman Ross Richardson said the company's large real estate holdings, $250 million cash on hand and the fresh $250 million in loans from Manufacturers Hanover and Chemical Bank would allow it to emerge from bankruptcy within the next two years.
Some customers shopping at Best's Rockville location yesterday were saddened but not surprised by the bankruptcy announcement. "It's a shame," said Marilyn Jackman, who was exchanging a desk lamp. "I like them."
"I know the retail industry is in trouble. ... It's one thing after another now -- Bell last week, Best today," said Marietta Smith, who was just laid off from her job at Nordstrom and who bought appliances, lawn furniture and tools at Best. "This is depressing."
Staff writer Sue Ann Pressley contributed to this report.