Best Products, Beset by Debt, Files for Chapter 11 Shield
One of the nation’s oldest and biggest catalogue showroom retailers, Best Products, on Friday sought protection from creditors in bankruptcy court.
The company joined the steadily expanding group of retailers over the past year that have filed Chapter 11 bankruptcy petitions after being dragged down by takeover debts and sluggish consumer spending.
For Best, analysts said, there is a big additional problem: The entire catalogue showroom industry has been fading since the late 1970s, a victim of consumers’ changing shopping habits and competition from more efficient discount and warehouse-style retailers.
But in a telephone interview from his headquarters in Richmond, Va., Best President Stewart M. Kasen said the company would stick with its current retailing format and would emerge from Chapter 11 a stronger business. Under Chapter 11 of the U.S. Bankruptcy Code, companies are shielded from creditors’ lawsuits and given time to reorganize their businesses.
Company executives said Best would be revitalized partly by a $30-million cut in its expenses announced Friday, accomplished largely through the dismissal of 350 workers. About 30 to 40 employees in California will lose their jobs.
Executives said the Chapter 11 reorganization also would allow the company to reduce its burdensome long-term debt of $660 million. In addition, executives said Best arranged $250 million in fresh bank financing that they believe will encourage balky suppliers to resume shipments to the company’s stores.
Some analysts expressed doubts, however, about Best’s chances of recovering. Chriss Street, a bankruptcy specialist with Seidler Amdec Securities in Los Angeles, gave Best “a 50-50 chance” of avoiding liquidation.
Street and other analysts said catalogue showrooms lack the cachet of department stores and the convenience and low operating costs of discount chains and warehouse outlets. Catalogue showrooms “have the worst of all worlds,” Street said.
Shoppers at catalogue showrooms pick merchandise by looking through catalogues and flyers available at the stores or mailed to their homes. After deciding what they want, shoppers fill out order forms, hand them in and wait for the merchandise to be brought out from the storage room.
When catalogue showrooms boomed in the 1960s and early 1970s, they had distinct business advantages over their competitors. Among other things, the showrooms needed fewer sales clerks because there was little need for workers to set up displays or to stock shelves on the sales floor--in many cases, the only items on display for customers were samples.
Also, under federal fair trade law at the time, showrooms were considered warehouses and thus were entitled to buy goods from manufacturers at lower prices than other retailers could.
In the mid-1970s, however, the economics of the industry changed dramatically. Congress in 1975 repealed fair trade pricing, putting showrooms on the same footing as other retailers in dealing with suppliers.
And, a year earlier, in 1974, the warehouse retail business was launched with the founding of the Price Club chain. The warehouse retailers, by buying in huge quantities and relying on a no-frills approach, matched the catalogue showrooms’ prices.
At the same time, the warehouse merchants offered customers the satisfaction of inspecting and picking merchandise themselves, without having to wait for items to be wheeled out from a back room. Warehouse and other discount retailers also were free to lower or raise prices as they saw fit, while showroom merchants were locked into the prices listed in their once-a-year catalogues.
Kasen said, however, that the catalogue showroom format still offers advantages. He maintained that consumers enjoy the convenience of shopping with catalogues that they receive at home and like the wide assortment of merchandise offered by showroom retailers.
Best has been under pressure from its suppliers and banks for a year. First, Best struggled to refinance part of the debt from the $1.1-billion buyout in 1988 that took the company private and put it in the hands of the New York investment firm Adler & Shaykin.
Later on, suppliers grew nervous and curtailed or cut off shipments to Best outlets. Kasen said that during the last quarter of 1990, inventories were so low that the company failed to fill one in every four orders placed by customers. In December, the company halted payments to suppliers and began talks to renegotiate its debt.
In 1989, Best lost $52.9 million on sales of $2.09 billion. Kasen said sales would be lower and the loss bigger for 1990.
The company, which employs 17,000, has 195 Best showrooms in 27 states. In California, there are 31 showrooms, about evenly split between the northern and southern halves of the state.
Best also operates Best Jewelry, a chain of 35 fine jewelry and gift stores, with nine California locations. In addition, it owns Tele-Mail, a nationwide mail-order service.
The company, founded in 1956, bills itself as the nation’s oldest catalogue showroom retailer. In size, it is second only to Nashville, Tenn.-based Service Merchandise.
