Caldor seeks bankruptcy protection Fierce competition, uneasy suppliers, drop in sales cited

Stores to operate as usual

$250 million loan to keep shelves filled through Christmas

September 19, 1995|By Alec Matthew Klein | Alec Matthew Klein,SUN STAFF

Caldor Corp., the nation's fourth-largest discount department store chain, bowed to relentless financial pressure yesterday, filing for bankruptcy protection, culminating weeks of speculation about the troubled retailer.

Over the past month, the Norwalk, Conn.-based company repeatedly denied that its vendors were halting the delivery of goods and that factors, middlemen who guarantee that vendors will be paid, were no longer approving the shipment of merchandise.

But yesterday, Caldor finally acknowledged that there were problems, citing its recent slide in retail sales, the flagging confidence of suppliers and the hammerlock of competition from other retailers.

"Their fingers were in the dike. It came as no surprise," said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consulting firm in New York.

Customers are not expected to feel the immediate effect: All of the chain's 166 stores, including 12 in Maryland, will continue to operate as usual, the company said. And the retailer has obtained $250 million in financing from Chemical Bank to keep its shelves stocked, vendors paid and employees compensated -- a move that gives the chain breathing room through the crucial Christmas season, which accounts for as much as 60 percent of a retailer's annual sales.

"Our business today is fundamentally sound," Don Clarke, Caldor's chairman, said. "Nevertheless, over the short term, we have been confronted with a very difficult retail environment, characterized by fierce competition, weak sales, and exacerbated by other discount retailer bankruptcies."

Caldor has followed the path of its main competitor, Bradlees Inc. of Braintree, Mass., which filed for bankruptcy protection in June. Analysts fear that more could follow.

"This can happen to almost any discount retailer today. I'm afraid there's going to be a ripple effect," said Walter F. Loeb, president of Loeb Associates Inc., a retail consulting firm in New York. "Everybody's operating on thin margins. It's a very competitive time."

And it's only getting more intense, analysts say. Heavyweight retailers like Wal-Mart, squeezing smaller chains by offering lower prices, have taken a toll on Caldor, contributing to the chain's recent tailspin during which sales in stores open at least a year have dropped for six straight months. Despite annual sales of about $2.8 billion, Caldor had accumulated liabilities of about $883 million while holding assets of $1.2 billion as of July 29.

When Caldor emerges from bankruptcy, prospects for prosperity may not improve. Target, the No. 3 discount chain in the United States, is planning a major mid-Atlantic expansion, with 12 stores to open by July and another seven by the end of 1996.

"Target is right over their shoulders," said Mark Millman, president of Millman Search Group Inc., a leading national consulting firm.

But, he said, Caldor made the right move by filing for bankruptcy protection.

"It gives them the ability to buy the merchandise," he said. "Without it, they weren't a competitor. People don't buy from empty shelves."

Nor from vacant stores. When Caldor emerges from bankruptcy, analysts say, the chain could end up shedding up to 20 of its marginal stores and scrapping some of its planned but less promising store openings, including a site vehemently opposed in Portsmouth, Va.

In the Baltimore-Washington region, however, there are early signs that Caldor may stay the course.

Company officials have said that they plan to move ahead with a fall opening in Silver Spring, according to Jerome B. Trout Jr. of Trout Segall and Doyle LLC.

Caldor also has indicated that it plans to continue operating its Timonium store on York Road, said F. Patrick Hughes, chief executive of Mid-Atlantic Realty Trust, which owns the building.

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