McCrory, West Coast Video file for bankruptcy Five-and-dime stores face bleak future, analysts say

February 27, 1992|By Michael Dresser | Michael Dresser,Staff Writer

McCrory Corp., one of the last remaining titans of the ailing variety-store industry, sought shelter from its creditors yesterday amid strong doubts it will find anything more than temporary refuge.

The York, Pa.-based chain, a fixture in the Baltimore market since the 1950s, said it filed for Chapter 11 bankruptcy because it will be unable to pay bondholders $75 million due in July.

Its petition, filed in U.S. Bankruptcy Court in Manhattan, listed $542.7 million in liabilities and $671.9 million in assets as of Feb. 21. The company's stores will remain open while its management formulates a reorganization plan.

McCrory's filing was all but a foregone conclusion after it defaulted two weeks ago on $3.37 million in debts. "The trade was not shipping the merchandise, so there was nothing else to do," said Howard Davidowitz, chairman of the Davidowitz & Associates retail consulting firm in New York.

Brown Vincent, a manufacturer's representative with H.W. Cook & Associates of Wilmington, Del., welcomed the filing. "To the extent that credit can be guaranteed, all vendors will ship to McCrory's again," he said.

The company apparently has secured that guarantee. It said yesterday that it has arranged for $100 million in debtor-in-possession loans and that a bankruptcy judge had approved interim financing of $40 million.

McCrory, one of the remaining pillars of the crumbling business empire of businessman Meshulam Riklis, is the latest in a parade of major retailers to trudge into bankruptcy court in the wake of a disastrous holiday season.

McCrory's filing comes two months after the chain said it would close 229 stores, leaving it with about 820 across the country. The company, which opened its first Baltimore-area store at 6311 York Road in 1955, operates about a dozen McCrory's and a half-dozen G.C. Murphy stores in the Baltimore area.

Besides McCrory's and G.C. Murphy, the corporation also operates under the names J.J. Newberry, H.L. Green and S.H. Kress.

The company said yesterday that the filing would let it eventually emerge from bankruptcy "as an even stronger and more valuable business enterprise." But analysts are skeptical that McCrory will be able to bring off a successful reorganization.

Mr. Davidowitz predicted McCrory's next step will be more drastic cutbacks. "I think they'll close more stores. I think they'll close more warehouses. I think they'll dump more people," he said. Mr. Riklis' ownership position "will be gone," Mr. Davidowitz predicted.

But that is unlikely to be enough, Mr. Davidowitz said. McCrory's basic problem, he said, is that variety stores are headed for extinction as major discount stores devour their market. "They -- really are a dinosaur," he said of McCrory's.

Mr. Davidowitz said he doubts McCrory will be able to arrange the type of debt-for-equity swap that is typical of a successful reorganization. "If you try to give the creditors equity, they're going to say, 'Equity in what?'," he said. "What's the company worth?"

Mr. Vincent, the manufacturer's representative, said McCrory's could be viable if it concentrates its efforts on the inner-city market, where it has little competition, and learns to manage its inventory better. But to do that, he said, McCrory's has to "get with the times."

"They don't even have scanners in the stores," he said. "They have to get up to speed operationally or they're just going to be left in the dirt."

McCrory's has been posting losses for more than a year. Over the first three quarters of 1991, it lost $42.3 million as sales fell 7.2 percent, to $961 million.

Top retail bankruptcies

MCCRORY CORP.: Operates more than 800 five-and-dime stores. Sought Chapter 11 bankruptcy protection yesterday.

R.H. MACY & CO. INC.: Operates 247 stores. Sought bankruptcy protection on Jan. 27, overwhelmed by the recession and debts.

FEDERATED DEPARTMENT STORES INC.: Operates 140 stores, including the Bloomingdale's and Lazarus chains. Failed to make interest payments after a takeover by Campeau Corp. for $6.6 billion in 1988. Filed in January 1990.

ALLIED STORES CORP.: Operates 82 stores, including Bon Marche and Stern's chains. Failed to make interest payments after a takeover by Campeau Corp. for $3.4 billion in 1986. Filed in January 1990 with Federated.

CARTER HAWLEY HALE STORES CORP.: Operates 88 stores in Western states. Failed to make payments on debt from 1987 restructuring to thwart a takeover by Limited Inc. Filed in February 1991.

AMES DEPARTMENT STORES INC.: Operates 371 stores in 15 states. Was unable to handle debt after buying Zayre discount chain in 1988. Filed in April 1990.

REVCO D.S. INC.: The leading drugstore chain, operator of 1,141 stores in 10 states. Failed to make interest payments on debt from leveraged buyout in 1986. Filed in July 1988.

ZALE CORP.: The nation's largest jewelry chain. Forced into Chapter 11 bankruptcy protection by creditors in January because of heavy debts and a sales slump.

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