Wherehouse Seeks Chapter 11 Bankruptcy Protection : Retailing: Competition and a heavy debt load are double whammy for music and video chain.


Wherehouse Entertainment Inc., a music and video retailer burdened with heavy debt, increasing competition and tough economic conditions, filed for Chapter 11 bankruptcy protection Wednesday.

“Time was running out. We were running out of cash and we took the only action which allowed us to treat all creditors equitably,” Wherehouse Chief Executive Jerry E. Goldress said.

The filing in U.S. Bankruptcy Court in Delaware comes only six weeks after Goldress had expressed hope that the 25-year-old Torrance-based company could alleviate its debt problems through a financial restructuring.

But recently vendors unexpectedly demanded cash payment, saying Wherehouse had reached its credit ceiling, Goldress said. Meanwhile, the company defaulted on more than $8 million in debt payments due July 31 and Aug. 1.


Wherehouse said its more than 340 stores will remain open. Goldress said consumers can expect well-stocked stores for the holiday shopping season. The company said it will work out a restructuring plan with creditors early next year, after monitoring its success during the Christmas season.

Wherehouse’s financial difficulties have been developing for several years. The 1992 takeover of the company by Wherehouse management and Merrill Lynch Capital Partners added to the company’s debt. In June, the New York bond-rating agency Standard & Poor’s downgraded Wherehouse’s $110 million in bonds from CCC to C, junk bond status.

“They were carrying a significant amount of debt. They’ve gone through some organizational changes. They have their stores concentrated on the West Coast, which has had difficult economic times,” said Jim Donio of the National Assn. of Recording Merchandisers in Marlton, N.J.

Competition from airport kiosks, mail-order companies, home-shopping outlets, book sellers, convenience stores, discounters and department stores has also contributed to the company’s difficulties, Donio said. “Music is everywhere,” he said.


The biggest competitive threat has come from electronics retailers such as Best Buy and Circuit City, which sell sharply discounted music to attract customers. Other stores are forced to compete, lowering their profit margins.

Also, while the amount of shelf space for recorded music has increased by 25% in recent years, music sales have remained basically flat, retailers say.

Goldress said Wherehouse will work with creditors to devise new strategies. “It’s a very viable company,” he said. “It’s just too much debt.”