Crown Books Says It’s in Danger of Failing
Crown Books Corp., its sales slumping and its cash running low in the face of intense competition from the likes of Borders Group Inc. and Barnes & Noble Inc., said Tuesday it is in danger of failing and might seek the protection of bankruptcy proceedings.
The Landover, Md.-based operator of 180 bookstores, including more than 50 in Southern California, said it is trying to renegotiate its financial arrangements with its main book vendors and its lenders to get more breathing room.
But if that doesn’t work, “there can be no assurance that the company will have sufficient liquidity to continue as a going concern,” Crown said.
And in its annual report to the Securities and Exchange Commission, Crown said it “will consider reorganization protection alternatives under bankruptcy laws” if it can’t somehow raise the cash it needs to continue.
In response, Crown’s stock on Tuesday plummeted $2.94 a share to $4.56, a 39% plunge that made it the biggest percentage loser on the Nasdaq Stock Market. The stock stood at $12 a share a year ago.
Crown--whose officials did not return telephone calls seeking comment Tuesday--lost $49 million on sales of $298 million in its fiscal year ended Jan. 31, and it has now posted losses in three of the last four years. The chain also has been up for sale for some time, analysts said.
How did Crown find itself in this mess, particularly with the bookselling industry enjoying robust sales overall?
Founded in 1977, Crown has been known as an aggressive discounter, especially of bestsellers, and it has converted many of its stores into larger Super Crown outlets over the years. But the company failed to keep pace with the development of bigger, more elaborate bookstores by Barnes & Noble, Borders and others that have become a smash hit with shoppers, analysts said.
These chains now offer spacious, modern stores complete with a huge selection of books, coffee bars and cafes, music, seating areas and other amenities. They’ve helped book sales thrive, and sent the revenues and stock prices of Borders and Barnes & Noble sharply higher. It’s also a strategy that has been embraced by many regional, independent booksellers, such as Vroman’s Bookstore in Pasadena.
“There’s an ambience at these stores that goes beyond just selection,” said John Lyons, who follows book retailing for investment firm ABN AMRO Inc. in New York. “It’s an intangible. Crown has never been able to replicate that to the same extent.”
In addition, the Internet has become a popular new source for book sales, with Borders, Barnes & Noble and others now vying with online bookseller Amazon.com Inc., however, Crown has yet to make the same move.
“Crown failed to stake its claim . . . in terms of responding to what kind of shopping environment they [consumers] wanted,” said Maureen McGrath, an analyst at Salomon Smith Barney Inc. “They stood relatively still.”
Crown’s internal controls that monitor its purchases and payments to vendors also broke down, the SEC filing shows. And Crown’s performance wasn’t helped by a lengthy, nasty feud between members of the Haft family that formerly controlled Dart Group Corp., which owns a 52% majority of Crown’s stock.
The fight, which erupted publicly in the early 1990s, involved patriarch Herbert Haft and his sons, including Robert Haft, who became a familiar face on television with his advertising that proclaimed: “If you paid full price, you didn’t buy it at Crown Books.”
The Haft family’s ties to Dart were completely severed earlier this year, and Crown has replaced nearly its entire senior management in the last few months. But matters between Crown and Dart remain complex.
Dart--which also owns Shoppers Food Warehouse supermarket chain, and a controlling stake in auto-parts retailer Trak Auto--agreed last month to be acquired by Richfood Holdings Inc. for $207 million.
Once the merger is completed, Richfood plans to divest Dart’s holdings in Crown and Trak Auto. But Crown’s deteriorating condition might make it harder to sell those holdings.
Richfood said its president and chief financial officer were traveling Tuesday and unavailable to comment.
Crown, with about 1,600 full-time and 2,400 part-time employees, operates in just a handful of states besides California, including Washington, Texas, Illinois and Pennsylvania, and in Washington, D.C.
Its new management is racing to turn things around, Crown’s SEC filing indicates. Crown’s new chief executive is Richard Stone, a former U.S. senator from Florida who is also Dart’s chief executive, and its new president and chief operating officer is Anna Currence, who spent several years at Barnes & Noble and its B. Dalton Bookseller unit.
They’ve got their hands full, the filing shows. Among other things, prior management put in a new inventory and accounts-payable tracking system “without the system being completely tested,” and that led to Crown being unable to accurately track what it was buying from its vendors and how much it was paying, the filing states.
So far, new management’s efforts to fix the system “have not resolved the problems,” it adds.
