Bercor Files Chapter 11; Low Sales, High Costs Cited
Bercor, a La Mirada consumer products distributor that has made a mark in toy merchandising, said Friday that it has filed for protection under Chapter 11 of the bankruptcy code.
Citing disappointing sales and rising expenses as factors contributing to recent losses, Bercor executives said they hope to continue making payments to suppliers while the company reorganizes under bankruptcy court protection. By giving its vendors priority over other creditors, Bercor would be able to obtain products and continue distributing during the company’s peak sales periods--the back-to-school and Christmas seasons, said James R. Stites, the company’s chief financial officer.
In Chapter 11 proceedings, a company continues to operate under its existing management while it attempts to work out a plan to pay its bills.
Bercor, which ranks among the nation’s top three distributors of toys, has wholesale operations in hair-care products, stationary, small appliances and consumer electronics. Bercor acquired its electronics distribution subsidiary, Craig Consumer Electronics, for $1.6 million in 1985. It also purchased another consumer products distributor--Allied Distributing Co., a subsidiary of San Francisco-based DiGiorgio Corp.--for $9.4 million in 1985.
But consolidation has been the trend at Bercor in recent months. Faced with heavy competition and shrinking profit margins, Bercor earlier this year withdrew from the large appliance market by phasing out televisions and refrigerators, Stites said. To improve profitability, the company also recently closed major distribution centers in Kansas City and Compton and expanded the service areas of distribution facilities in Chicago and La Mirada, he said.
However, the La Mirada and Chicago sales operations--envisioned as profitable linchpins that would help balance the retrenchment costs--have been disappointing, according to Stites.
“Whenever you close down operations, there are one-time costs that occur,” he said. “We were . . . not able to attain the level of sales we anticipated.”
The cost of the consolidation is reflected in the company’s recent earnings reports. The company had a loss of $4.52 million on sales of $136 million during the first nine months of its fiscal year, which ended April 1. Bercor had earnings of $78,000 on sales of $162 million for the same period during the previous fiscal year.
“We will be reflecting a very substantial loss for the year,” said Stites, “and we expect the loss to continue into the first quarter of the new fiscal year.” He did not give a specific estimate of the loss.
Distributors of consumer electronics have been squeezed becauses product prices have been falling and because more retailers are buying goods directly from manufacturers, according to Sally Schaadt, an industry analyst at Fourteen Research.
“Distributors work on a very small profit margin and have to keep costs very, very low,” she said. “There’s not much room for error.”
