Burdened by sagging sales, a mountain of debt and a dying retail formula, McCrory Corp., one of the nation's largest and oldest operators of traditional five-and-dime stores, Wednesday filed for bankruptcy protection.
The filing in New York City had been expected. Less than two weeks ago, McCrory, which operates J. J. Newberry, TG&Y;, S. H. Kress and a host of other chains, missed a key loan payment and warned its employees, creditors and suppliers that it was considering all available business options.
Under the Chapter 11 petition, the latest in a spate of filings by troubled retailers across the country, McCrory's will remain in business and reorganize its finances. The company said it expects to emerge from the bankruptcy reorganization "as an even stronger and more valuable business enterprise."
However, analysts said it is likely that McCrory will emerge as a considerably smaller operation after it closes dozens of the weakest of its 819 stores across the country. Those outlets, including 98 in California, employ 18,000 full-time workers, many of whom could face layoffs, analysts said. The company will not comment on closures.
Analysts said the 109-year-old retailer, which has lived in the shadow of its older and better known arch-rival, F. W. Woolworth & Co., was pulled down by several powerful forces in today's treacherous retailing environment: too much debt, increasing consumer wariness and the increasing popularity of discount, warehouse and specialty outlets.
"The traditional five-and-dime store concept is an anachronism," said Carol Palmer, a retailing analyst at the Duff & Phelps brokerage in Chicago.
Added John Golisch, a retailing specialist with the Arthur Anderson & Co. accounting and consulting firm in Los Angeles: "Dime stores don't have customer base left. Whatever they sell, you can buy at a discount store, specialty outlet, warehouse club, drug store or even a supermarket. There is nothing unique about these places any more."
Furthermore, analysts note that the majority of McCrory's outlets are in decaying downtown sections of cities, not newer suburbs with their more affluent residents.
In its petition, McCrory said it was canceling a contract that paid the flamboyant and controversial Beverly Hills businessman Meshulam Riklis more than $2.9 million annually--the "great bulk" of his salary as chief executive. McCrory attorneys said Riklis, husband of Hollywood personality Pia Zadora, will stay on as chief executive.
Riklis acquired the McCrory operations, which trace their roots to 1882, in one of the earliest leveraged buyouts of the 1980s and proceeded to expand the empire with additional debt-financed purchases. Although the organization grew, sales did not keep pace, and the company had little money to reinvest in its decaying operations and locations.
McCrory, which has lost money most of the last three years, tried to stave off a bankruptcy protection filing in December when it announced plans to close nearly a quarter of its 1,030 variety stores and cut more than 2,000 employees. For the first nine months of 1991, the company lost $42.3 million on sales of $960.7 million, down 8% from $1.05 billion in the same period the previous year.
In its filing, McCrory listed assets of $672 million and liabilities of $543 million. It said outstanding debt totaled $223 million--more than 85% of which is not due until 1995 and beyond.
The company said its Chapter 11 filing was prompted in large part by bank demands that $75 million in debt securities be paid by July--two years ahead of scheduled maturity. Analysts said the five-and-dime store concept is barely hanging on in an era of "category killer" operations, such as Toys R Us; warehouse clubs, such as Price Club, and huge discount stores, such as Wal-Mart, Kmart and Target.
"It's really a dead concept, and someone just forgot to buy it," said Kurt Barnard, publisher of Retail Marketing Report in New York. "They have outlived their usefulness."
Even Woolworth, the dime-store industry leader, has been struggling. Several weeks ago, it announced plans to close up to 8% of its more than 1,000 stores.
Although Woolworth's general merchandise stores are profitable, they make less money than its specialty retail operations, which include Foot Locker and Kids Mart stores.
A Look at McCrory Corp.
History: York, Pa.-based McCrory, which had sales of $1.4 billion in 1990, traces its roots back to 1882.
Employees: About 18,000
Retail operations: After closing more than 200 stores by the end of January, the firm had 819 outlets in the U.S. operating under the names TG&Y;, J. J. Newberry, H. L. Green, S. H. Kress and G. C. Murphy. In California, there are 98 McCrory-owned stores, the majority of which operate under the J. J. Newberry name.
Other operations: The bankruptcy-protection filing does not affect the ongoing operations of E-II Holdings Inc. or its independently operated subsidiaries--Samsonite luggage, the Culligan International water company and MacGregor sportswear, including the 500 Fashion Group, Anvil Knitwear and Global Licensing operations.
Source: McCrory Corp., Newsday, SEC filings
RELATED STORY, A1