Clothestime Inc., a troubled discount apparel chain that took root at 1970s Orange County swap meets, filed for protection in U.S. Bankruptcy Court on Friday, a victim of intense competition from large, national retailers.
About 140 of the company's 550 locations will be sold off or closed as the Anaheim-based retailer reorganizes its finances through a Chapter 11 bankruptcy proceeding. Executives did not say how many of the company's 4,100 employees would lose their jobs.
Clothestime Chairman and Chief Executive John Ortega III blamed the filing on an increasingly tough competitive environment. "Marginal [stores] won't survive . . . [and] we intend to be a survivor," he said.
The chain plans a bankruptcy-related sale to reduce its inventory levels, Ortega said, adding that "we expect to be able to provide [customers] with as good or better a selection of goods and services as before the filing."
Clothestime executives did not say how much the company owes to creditors, but a news release issued late Friday said the company has arranged for $40 million in financing from CIT Group/Business Credit Inc. That amount equals a $40-million loan from Wells Fargo Bank and Union Bank that bankers have been scrutinizing in recent weeks.
Rumors about Clothestime's filing have been swirling for weeks in the tightknit retail apparel industry. Clothestime has lost $18 million in the last two years, pummeling the company's stock, which traded two years ago at more than $10. Clothestime fell another 25 cents on Friday to $1.25 in Nasdaq trading.
Sales at the apparel chain have been slipping as customers flock to powerful national chains such as Wal-Mart Inc., Sears, Roebuck & Co. and J.C. Penney Co. that can offer familiar name brands at attractive prices. That combination is deadly for smaller specialty chains such as Clothestime, which carved out profitable niches during the 1980s by selling their own private-label apparel at low prices.
"Clothestime is fighting in a very, very tough arena," said New York-based retail analyst Kurt Barnard. "Stores like Sears have a much larger assortment of merchandise, and they're taking a lot of market share from specialty shops and off-price stores."
Clothestime recently hired former department store executive Lynne Sperling to help jump-start its sales, but hasn't reversed the sales slide. Last week, executives said they would close an undetermined number of stores and lay off some employees.
Finally, late Friday, a team of lawyers filed a thick stack of documents in Bankruptcy Court in Santa Ana.
"Clothestime is in good company," said Howard Raab, president of Park Avenue Transglobal Financial Services Inc., a Los Angeles-based commercial credit service. "There are lots of big retail names across the country that are suffering, like our friends at Kmart. Simply having a recognized name or longevity doesn't count anymore. You've got to keep on top of all the trends."
Clothestime, founded in 1978, began in an Orange County swap meet booth during the 1970s. The DeAngelo family, which has since turned management over to Ortega, opened its first store in 1978, catering to women between the ages of 18 and 35.
Clothestime kept its costs low by opening stores in strip malls and offering private-label merchandise at prices that undercut name brands.
Former Chairman and founder August DeAngelo, now retired but still a board member, owns about 2.8% of Clothestime shares. His son, Raymond, resigned as chief executive Jan. 6, receiving a one-time $250,000 payment and the promise of another $1 million over the next two years.