Bankruptcy filings provide closer look at Lack's struggles, imminent closing
Nov. 20, 2010 at 5:20 a.m.
LARGEST Debts owedCreditors holding the largest unsecured claims for Lack's Stores Inc.:
Sealy Mattress Company $3,051,109.10
Lane Furniture Industries $2,813,675.57
Brownchild Ltd. Inc. $823,095.50
LG Electronics USA, Inc. $791,407.09
Tartone Enterprises, Inc. $452,456.01
Corinthian Inc. $363,921.21
SED International $240,596.84
Steve Silver Company $229,132.93
Standard Furniture Mfg., Co. $194,327.40
Global Link Logistics, Inc. $137,733.00
Michael Nicholas Designs Inc. $134,244.00
Oak Furniture West LLC $95,104.50
Legends Furniture $93,588.55
Ryder Integrated Logistics, Inc. $88,759.70
Progressive Furniture, Inc. $84,871.74
Lifestyle Enterprises $73,937.09
Austin American Statesman $72,317.30
Source: Document filed with the United States Bankruptcy Court for the Southern District of Texas Victoria Division
COMPANY's financial historySince its inception, Lack's has financed a significant portion of its customers purchases through the underwriting of "in-store" financing, according to its bankruptcy filings.
During the past few years, Lack's financed about 70 percent of all customer sales.
The company has historically collected about 95 percent of its customers' payments.
From Feb. 1 through the bankruptcy filing date, Lack's has generated revenue of more than $122 million and has an operating profit of more than $1 million.
Lack's employed 886 people at the time of the bankruptcy filing.
The CIT Group holds Lack's Senior Credit Agreement, a revolving loan.
Lack's owed $86 million at the time of the bankruptcy filing. That amount had been reduced from $105 million since January 2009.
Lack's also has debts to an assortment of vendors. Those debts total about $12 million, according to the filing.
farewell MEMO to employeesIn a memo to its employees announcing the bankruptcy, Lack's owners concluded:
"The Lack family thanks each of you for your loyalty, your hard work, your affection, your years of service and the talents you have brought to us. We regard you as family and your contributions will always be remembered and appreciated! We care for you and will work to help you through this process."
To read the memo Lack's distributed to employees, information on the creditors with largest remaining claims, initial bankruptcy filing or a declaration laying out the thought process behind the bankruptcy decision, visit www.VictoriaAdvocate.com and click on the PDFs that accompany the story.
Lack's Stores owners are using a complicated legal process to end a seven-decade-old company.
Although Victoria owners Melvin and Janey Lack have not spoken about their plans, the company's bankruptcy filings reveal more about Lack's financial struggles and its imminent demise.
On Monday, the Victoria-based furniture chain announced plans to file for protection under Chapter 11 bankruptcy and to close its 36 retail locations. The company cited lending problems for the decision.
In a memo to employees contained in the court files, the company estimated the entire inventory in all stores would be sold within 60-75 days. The memo also said the company would seek court approval of payment honoring all employee salaries, commissions, unused vacations and other benefits.
Lack's filed a complex case that means the company will meet with the court every other Wednesday to handle the issues surrounding its final days, said Pamela Stewart, a bankruptcy attorney who practices in Houston and Victoria. Companies can opt to either reorganize or liquidate, she said, and Lack's chose liquidation.
Through Chapter 11, Lack's can group lenders by product types and handle each group accordingly, Stewart said.
Chapter 11 allows the company to remain the debtor in possession, meaning the Lack family will continue handling day-to-day operations.
"They'll get more for their creditors than with a Chapter 7," Stewart said. "Chapter 11 was a good choice."
Although bankruptcy incidents vary case by case, she said, she expected the case to reach a resolution by February or March.
Several factors contributed to the company's decision to file, the company contends in federal bankruptcy documents.
Consumer demand dropped about 20 percent in 2008, although the company managed to control expenses and remained profitable through 2010. At the same time, credit markets tightened worldwide.
A majority of Lack's customers maintain sub-prime ratings, according to the document, and the company was unable to find alternative financing sources. Without additional sources, the company could no longer purchase new inventory or underwrite new customer loans.
In the Tuesday bankruptcy filing, the company indicated it maintained both debts and assets between $100 million and $500 million. Lack's also has between 200 and 999 creditors, according to the document.
The company selected Hilco Merchant Resources and SB Capital Group to aid in the liquidation process.
Melvin Lack, the company's president and CEO, told trade publication Furniture Today he was saddened by the way the lenders handled the situation.
"I find it very sad that banks such as CIT and JP Morgan Chase, among others, who have received (Troubled Asset Relief Program) funds and government support in order to save them and help the economy, have not shown support for businesses like ourselves," he said in the article. The Lacks have not granted other interviews.
Most every independent retailer maintains a good relationship with its local banker, said Mary Frye, president of the Home Furnishings Independents Association. It's part of being a good business person, she said.
The problem is those relationships changed when banking practices changed.
"They are changing the rules on a dime like they've done with Lack's, in calling in notes that were never designed to be called in with no warning or opportunity to pay it out," she said.
Lack's might have been slightly more vulnerable than other businesses, simply because, with 36 stores, it meant heavy volume and many people paying out purchases, she said. The formula worked well for years - and would have continued to work - but the method doesn't pay off immediately.
"If you have an agreement with a customer that they can pay the bill off in 12 months, but the bank decides it needs the money in two months, that can be problematic," she explained. "That can be business devastating."
Victoria's Ashley Furniture Homestore does not do any in-house financing. Instead, it goes through banks that specialize in financing furniture purchases for customers, said Ben Streiff, Ashley's director of operations for the Cuero warehouse. Many other furniture and appliance stores and automobile dealers have taken this approach.
As for Ashley's future, he said, the business' outlook is bright, but the credit market changes daily. Credit has tightened and both customer approvals and approval amounts are down.
Frye said times have been tough for all furniture retailers.
Imported furniture means lower prices, which is good for customers, but means retailers must sell more to bring in the same amount they received in the past. Also, when money becomes tight, consumers postpone buying home furnishings.
"If your car breaks down, you get another one," Frye said. "If your fridge breaks, you get another one. If your furniture is ugly, you just don't let anybody come over to your house."
Most Lack's employees will lose their jobs once store closing sales end, according to an employee memo that was part of the bankruptcy filings. Employees with the collections department, however, will likely remain on.
Victoria resident Fabian Soria hasn't shopped with Lack's in years, but said he remembered his parents making purchases at the store.
"I was surprised they were closing," Soria, a Halliburton employee, said.
His fiancee, Raquel Pulido, agreed. Pulido's father was a devoted customer, she said, and it will be strange to lose such a longtime employer.
The close offers some benefits for customers looking for deals on furniture, however.
"We're going to be buying a house soon," Pulido said. "We'll need furniture. We'll probably go in and look around."
Lack's isn't alone in its business woes, Stewart said.
Recently, more and more companies have gone under, she said, noting entities such as California's Crystal Cathedral church and American Media, parent company for the National Enquirer, as others who have declared bankruptcy.
"I don't think we've come close to seeing the bottom of these types of stores going out," she said.