Retailer links drop in home sales to revenue decline

Scan files for bankruptcy

December 28, 2007|By Tricia Bishop | Tricia Bishop,Sun reporter

The ailing housing market isn't just affecting those who build homes - but also those who fill them.

This week, Rockville furniture retailer Scan International Inc., which operates five stores in Maryland and two in Virginia, filed for bankruptcy protection in a Baltimore court. The company said revenue had dropped 20 percent during the past year and it owed money to more than 200 creditors, which include international furniture dealers and customers.

Papers filed by the company Wednesday in U.S. Bankruptcy Court for the District of Maryland attributed the sales drop in part to "the decline in the housing market and loss of business as a result of other furniture retailers ceasing operations and liquidating inventories at deep discounts."

FOR THE RECORD - An article in yesterday's business section incorrectly reported the number of retail locations operated by furniture seller Scan International Inc., which has filed for bankruptcy protection. The company has five stores.
The Sun regrets the error.

Messages left yesterday with the company and its attorney were not returned.

A hearing will be held this morning to determine whether the 47-year-old company can maintain its financial accounts and borrow money - up to $1.7 million under an agreement with Wells Fargo Business Credit. That agreement requires Scan to "immediately commence a liquidation sale of its assets," according to court documents.

Liquidation sales and rock bottom prices at retailers such as Ikea have made it tougher for higher-end stores to compete. Even those that have dropped their prices by importing less-expensive furniture have lost some profit margin, analysts said.

Add in the slumping housing market, and it equals a stall in home furnishing sales. Retailers including Wal-Mart and Federated Department Stores have reported weak sales for furnishings this year. And Texas-based Bombay Co., known for its mall locations, filed for bankruptcy, liquidated its stores and last week sold its brand name at a New York auction.

"When real estate is booming, people are moving, they're moving up ... adding on, redecorating," said Richard P. Clinch, director of economic research at the University of Baltimore's Jacob France Institute. "So, logically, the housing bubble burst is bad for retailers who sell home furniture."

Scan, which specializes in one-of-a kind finds from around the world, had revenue of $17.5 million this year, compared with $22 million in 2006, according to court documents, which also estimated assets and liabilities each to be between $1 million and $100 million. The company owes roughly $1.7 million to its top 20 creditors, and undisclosed amounts to hundreds of individuals documented in a 28-page list.

Vincent Bellofatto's mother is among them. He said his parents recently bought a piece of furniture from Scan. It was supposed to be delivered to their Elkridge home before Christmas, but hasn't yet arrived.

"They're saying it will come next year," Bellofatto said in a telephone interview.

Today's hearing will also determine whether Scan can pay its 70 employees money they're owed.

"Many employees simply live paycheck to paycheck and would be unable to meet their daily living expenses if they did not receive their full compensation," court papers said, noting also that "Chapter 11 filing is stressful" for employees.

"Such circumstances threaten employee morale just when a debtor most needs its employees' loyalty," the filings state.

Scan began as part of a grocery store in Takoma Park, selling Scandinavian furniture alongside the produce. The company opened its first retail location a few years later, eventually amassing 14 stores through the Mid-Atlantic area and Illinois.

An employee strike in 1987 led the company to file for Chapter 11 protection a year later, from which it emerged as a new corporation - Scan International - with half the number of stores.

tricia.bishop@baltsun.com

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