House of Fabrics Doubles Retreat, Will Close 200 Stores This Year : Retailing: Company posts $11.6-million quarterly loss. California will lose 25 stores and 250 mostly part-time jobs.


House of Fabrics Inc., among the nation’s largest fabric retailers and one that has been hurt by competition and the struggling California economy, said Tuesday that mounting losses will force it to close about 200 stores by year’s end.

The new plan more than doubles the scope of a retreat announced in November and will cost the 624-store, Sherman Oaks-based chain between $30 million and $40 million through closings, write-offs of improvements on leased properties and inventory liquidation, the company said.

The move will result in the closure of 25 stores in California and the loss of 250 mostly part-time jobs in the state--with half the store and job losses occurring in Southern California.

Chief Executive Gary L. Larkins said in a statement that the closures are necessary because of “extremely difficult operating conditions in an over-stored industry, compounded by a sluggish economy in California.”


The company said it lost $11.6 million in the second quarter ended July 31, almost triple the quarterly loss of a year earlier. Sales tumbled 15% to $110 million, from $129 million in the year-earlier quarter.

The company also disclosed that it is “in default of two of its financial covenants” and that it is negotiating with its bank lenders. House of Fabrics executives would not elaborate.

Wall Street frowned at the news. House of Fabrics’ stock tumbled 50 cents to $2.125 a share, a 52-week low, on the New York Stock Exchange. The price was as high as $14.50 in 1993. In November, the company announced plans to close all 105 of its mall outlets. About 30 of those have been shut down, and a write-off of $34.7 million for the closures contributed to a 1993 loss of $29.5 million on sales of $545 million. But the latest plan targets 125 of the chain’s 10,000-square-foot “super-stores.” Most of the closures will take place in the Midwest and on the East Coast, said Jim Hartwig, executive vice president of store operations. But 25 of the chain’s 160 California locations will also be closed, he said.

About 3,000 of the company’s 12,000 mostly part-time jobs will be eliminated, Hartwig said, including 250 positions in California.


“What we will be left with is our very best stores, and we plan to change the (inventory) mix in our stores to include more crafts and home decorating items, to appeal to a broader market,” Hartwig said.

Industry analysts were not surprised by House of Fabrics’ plans, noting that fabric stores have been navigating dire straits since the 1970s, when many women entered the work force and had less time to sew.

Competition from clothing outlets that offer ready-made apparel at bargain prices has also cut into fabric stores’ business. House of Fabrics has been hit particularly hard, analysts said, because much of its business is concentrated in California.

But Robert Simonson, an analyst with Kemper Securities in Chicago, said the $4-billion-a-year fabric industry is stable and that the bitter pill House of Fabrics is swallowing could ultimately restore its health.


“This is a very significant move on their part; this is not rearranging the deck chairs,” Simonson said. “House of Fabrics is certainly worth fixing.”

The first House of Fabrics store opened in 1946 on Wilshire Boulevard. Co-founder and longtime Chairman David Sofro took the company public in 1965.

In the mid-1980s, Sofro bought out a number of competitors, including the 23-store Southern California competitor Home Silk Shop in 1985.

Profits continued to grow into the early 1990s and House of Fabrics ranked among the nation’s largest fabric retailers. But in 1992 the bubble burst, as recession prompted fierce price wars among fabric retailers, Simonson said. House of Fabrics’ net income dropped to $5.2 million, down 73% from a year earlier.