Furniture Retailers in Trouble : Recession: Barker Bros. files for bankruptcy. RB may file this week. Both are victims of an industry slump that’s lasted four years.
Barker Bros., Southern California’s oldest furniture chain, filed for bankruptcy Monday morning and said it will liquidate its business to help pay its debts.
Hours later, a spokeswoman for RB Furniture in Irvine said her company is “reviewing its current position” amid increasing speculation among its suppliers that the chain will also seek bankruptcy court protection.
Sources said a filing could come as early as this week, if the company cannot negotiate a debt repayment agreement with suppliers. They are owed $18 million.
The deep problems at two of Southern California’s largest furniture chains dramatically highlight the devastating impact the recession has wrought on the local retailing scene, particularly among higher-end stores that depend on affluent, white-collar workers and their traditionally recession-proof discretionary incomes.
Although retailers--particularly those in the furniture industry--are hurting throughout the nation, the problems are especially acute in Southern California, where the recession has hit the aerospace, real estate, thrift and insurance industries--among the most important to the region’s economy.
“This is a white-collar recession, and that was our customer,” said Dennis Wong, chairman of Barker Bros. and the leader of the San Francisco investment partnership that bought the 111-year-old, upscale furniture chain two years ago. The Whittier-based chain closed its 10 outlets in Los Angeles and Orange counties Friday, throwing about 275 employees out of work.
In the last 18 months, four other furniture chains have closed or gone bankrupt in Southern California: W. J. Sloan, Angelus, Furnishings 2000 and Stylus.
“Southern California retailing is absolutely the pits,” said a furniture manufacturer who asked to remain unnamed. “The only business I’d want to be in out there is clothing. Southern Californians still want to look good, no matter what.”
Analysts said the nation’s furniture sales peaked in 1987 and have been steadily dwindling since, making this the industry’s longest recession since World War II--and three times longer than the average 16-month downturn of the last four decades.
According to Jerry Epperson, a Richmond, Va., investment banker, the furniture industry is especially stung by the current recession. The recession is affecting higher-income households that control about 60% of the nation’s discretionary income--the funds that typically cover items such as furniture.
“If 50,000 white-collar workers lose their jobs, the furniture industry has lost the buying power of more than 500,000 blue-collar families,” Epperson said.
Wong, a 34-year-old former investment banker with no previous retailing experience, acknowledged that he and his partners took on too much debt when they acquired Barker Bros. through a leveraged buyout for $18 million in August, 1989. Last year the company had sales of $54 million but lost money, according to Furniture Today, a trade industry publication.
Analysts said too much debt and an inflated purchase price also contributed to the problems facing RB Furniture, which was bought in 1988 for $53 million by a Beverly Hills investment group led by Gary Winnick, a former top lieutenant to junk bond king Michael Milken.
When Winnick’s group, Pacific Asset Management, purchased the company, it had 51 stores in California, Washington, Oregon, Arizona and Texas. The chain currently has just 28 outlets, all in Southern California. The rest were either sold or closed, as the company tried to pare itself down to a profit-making size.
The company had sales of $110 million last year, according to Furniture Today. Analysts said current-year sales would be far lower due to the store closings.
A company spokesman said Monday that RB is actively negotiating with its suppliers to restructure its trade debts. In a letter to its 492 employees, the company said it may be forced to lay off some workers in coming weeks.
RB said it also plans a “high impact sale” after Thanksgiving aimed at moving a year’s worth of merchandise in less than four months to raise cash quickly.
While Barker Bros.’ bankruptcy filing did not list assets and liabilities, Wong said the company’s single largest creditor was Barclay Commercial Bank in New York, which is owed $11.7 million.
Wong said the bank seized all of Barker Bros.’ cash accounts Oct. 25 and would not accept any of three separate restructuring proposals the company offered. Wong said the bank’s actions, which he termed “irrational,” forced the company into bankruptcy liquidation. A spokesman for the bank declined to comment.
Barker Bros.’ attorney, Cindy Futter of Millbank, Tweed, Hadley & McCloy in Los Angeles, said the bank pressed for bankruptcy liquidation because it did not believe that the company had any value around which to reorganize its operations. She said Wong tried to interest third parties in investing, but failed to do so.
Futter said a bankruptcy court trustee would be assigned to the case immediately and would oversee problems the bankruptcy has created for hundreds of customers, who have made deposits on custom-order furniture. Wong said customers who made deposits after Oct. 25 received refunds last week. Customers who made deposits earlier will have to plead their cases to the trustee.
Although customers’ accounts are subordinate to the bank’s secured loans, in some cases, experts said, customers may be able to complete their transactions, if the furniture is completed and the trustee determines that the balance owed on the order will help retire some of the Barker Bros. debt.
Furniture Fizzle The recession had dealt the furniture industry a severe blow across the country, with low after-tax profits for retailers in most regions. Typically, furniture retailers should have profits of 5% for a good year, industry sources say. The dollar value of furniture shipments by manufacturers to U.S retailers has dropped steadily since its post-World War II high in 1987. Shipments by manufacturers to U.S. furniture retailers in constant dollars: Source: Mann, Armstead & Epperson, Richmond, Va. , investment bankers. 1990 after-tax profits of home furnishing retailers on a regional basis: North / Central U.S.: 1.3% South: 2.9% West: 1.8% Good results: 5% Source: Natioal Home Furnishings Assn.
RB Furniture at a Glance
Headquarters: Irvine
Founded: 1955
Stores: 28 California locations, including 5 in Orange County
Employees: 492, including 210 in Orange County
Business: Furniture retailer
Principal: Daniel Selznick, president and chief executive
Source: RB Furniture
