National Lumber Files for Protection From Creditors
National Lumber & Supply Inc., the financially troubled operator of home improvement stores and a Southern California staple for nearly half a century, filed for Chapter 11 bankruptcy protection Tuesday.
In making the filing in federal bankruptcy court here, the Fountain Valley-based company said that intense competition from warehouse retailers and a slowdown in local housing and home-repair markets cut into the company’s cash flow.
The chain, which had earlier announced that it was attempting to refinance its debt and streamline its operations, will continue operations while attempting to reorganize under court supervision and devise a plan to repay creditors.
The bankruptcy filing is one of the largest ever involving an Orange County firm. The 48-year-old company, founded by prominent businessman Sol Jaffee, was an innovator in home-improvement retailing before falling on hard times in the late 1980s.
Melvin Jaffee, president and chief executive officer, was unavailable for comment Tuesday.
In a prepared statement, the company said the filing would help it restock depleted stores. National Lumber on Monday closed six of its 21 stores and laid off about 165 workers in a cost-cutting move. The consolidation was prompted, in part, by an inability of the firm to obtain goods.
“The filing will support the company’s efforts to obtain merchandise for its stores,” the firm said. “Priority is granted under the bankruptcy code for payment for merchandise shipped after the petition is filed.”
Daniel Saks, a spokesman for the company, said no further layoffs or store closings are expected as a result of the Chapter 11 filing. The company has more than 1,000 employees.
The company last week told suppliers that it was considering filing for Chapter 11. The firm then obtained an informal agreement from about 200 suppliers to continue sending merchandise on a collect-on-delivery basis and not to press payment of past debts immediately.
For the nine months ended Oct. 31, 1989, National Lumber listed assets of $38.4 million and liabilities of $38.8 million. Current figures, including lists of major creditors, were not available late Tuesday.
For the nine months ended Oct. 31, the company lost $4.4 million on revenues of $107.8 million. The company said earlier that it expects to report a “significant loss” for the fourth quarter and fiscal year ended Jan. 31. The company lost $4.6 million on revenues of $152 million the previous year.
National Lumber said it believes that it has financing to keep its remaining stores open while reorganizing, adding that it has received a $4-million financing commitment from Foothill Capital Corp. of Santa Monica.
The company also is continuing to negotiate with its current principal secured lender, Fidelcor Business Credit Corp., to increase its credit.
National Lumber said its plans to reorganize could include attempts to secure new investment capital, close additional stores, sublet or assign valuable leases and change the company’s merchandising strategy.
Whatever steps it takes, the company faces a difficult task to right its course in the face of stiff competition. Larger, national operators, such as Atlanta-based Home Depot and Fullerton-based HomeClub, have squeezed independent hardware stores and regional chains.
“Southern California has experienced a great deal of competition over the past few years with national chains coming into the nation’s strongest retail market and taking market share from local companies,” said Sarah Stack, retail analyst with Bateman Eichler, Hill Richards in Los Angeles. “The national chains have refined their operating formulas elsewhere and brought efficiencies to the market.”
These larger chains have strong financial backing and the synergy of combined advertising and mass purchasing. They often build warehouse-style stores with 100,000 square feet of space, compared to National Lumber’s average of 60,000 square feet. Hence, they can overpower smaller operators on price, selection and even service.
Analysts also said National Lumber was slow to install a computerized inventory system and experiment with new strategies until it was too late.
The chain was founded in 1942 by Sol Jaffee when he opened his first store in Bellflower in Los Angeles County. It thrived on the economic expansion in Southern California after World War II and has been controlled by the family ever since its founding.
Melvin Jaffee, son of the founder and day-to-day operator of the company since 1965, spearheaded National Lumber’s expansion, creating one of the industry’s first full-service home-improvement chains.
The company opened a second outlet in 1965, and two more by the end of the decade, including its first in Orange County, where orange groves were giving way to housing tracts. The chain added five stores in the 1970s and 13 more in the 1980s for a total of 22 in Southern California.
