Zane Campbell of Kirkwood likes to hit the bars early. He starts bellying up about 6 a.m. Yup, that's right, a.m., not p.m.
During a recent Thursday morning, he was at his regular spot at The Old Rock House in Soulard, where he faced an array of open bottles of booze for some five hours. But he wasn't drinking. Actually he was weighing. He took bottle after bottle of vodka, scotch, wine and what have you, scanned the bar code and put each bottle on a scale.
Campbell is a franchisee of Bevinco Corp., a Toronto-based company with a unique computerized method of detecting disappearing alcohol at bars and restaurants. He performs audits — usually weekly — at more than 40 area restaurants and bars.
He's looking for what is called "shrinkage." It means a bartender has a sloppy pouring technique or is giving away too many drinks — or somebody is just plain stealing it. Restaurants and bars typically lose about 20 percent of alcohol to shrinkage, according to restaurant industry estimates, and Bevinco says it can reduce that figure to less than 5 percent.
"With the economy the way it is, bars and restaurants need every dollar coming in," said Campbell. "If you're giving away 20 percent of your booze, it's thousands of dollars."
Campbell, who worked as a bartender during college, has a real appreciation for the loss. He said free-pouring techniques are far from exact.
"You wouldn't believe the waste," he said. "They overpour, and its adds up to a lot of losses, especially in a high-volume establishment."
So while each audit can cost $150 to $400, depending on the number of bottles involved, the examinations can save an establishment $1,000 to $2,500 a week, Campbell said.
As part of the audit, every open bottle of liquor and wine gets weighed. So do cans of energy drinks. And even kegs of beers get placed on an industrial-size digital scale.
"We do a complete inventory of every thing on hand," said Campbell, who has two of his employees help with the tedious weighing of more than 400 bottles at the Rock House.
With this information, Bevinco's computerized process then calculates the exact amount of liquor used during a reporting period against the amount of liquor that had been sold.
For example, the weight of a bottle of a certain liqueur shows that 28 shots had been used during the week. The Bevinco system then compares that to bar receipts to see whether 28 shots had actually been sold. The system will check for every drink that calls for that liqueur. If the system find that only 20 shots had been rung through the bar's cash register, the audit will show the bar is missing eight shots, or a 29 percent loss.
The results of an audit may often suggest whether the loss is being caused by overpouring, "mis-rings" in which the bartender records the wrong drink on the cash register, or theft.
For example, one client saw that 2.3 ounces of Glenlivit Scotch had been used, but only 1.5 ounces had been sold. That meant 0.8 ounce was missing. That's not a full shot. Because Glenlivit doesn't get poured in any mixed drinks, Bevinco would not think it was caused by a mis-ring. Instead, the missing Scotch was probably overpoured.
Mark Disper, owner of the Rock House, contracted with Bevinco after he opened the bar and restaurant in July.
"The concept was exactly what we were looking for. It gives us a way to monitor and keep track of our performance," he said.
Campbell said missing liquor doesn't necessarily indicate wrongdoing, but "it could be that a bartender's pouring techniques are wrong. But it all adds up."
Bevinco isn't suggesting that bartenders stop pouring complimentary drinks, he said.
"You definitely want your bartender to give your regulars or those who might become regulars free drinks," Campbell said. "The competition is super thick."
However, Bevinco recommends that bartenders be given a manager-approved, separate tab for this purpose.
"That way when I pull the sales, I can account for the comps so they don't figure into the shrinkage," Campbell said. "You definitely want to take care of your customers."
Saturday, May 17, 2008
Wednesday, May 14, 2008
The ethics of hoarding
In the Philippines, they're threatening life sentences for traders hoarding rice. In the United States, grocers need to put limits on rice purchases just to keep their shelves stocked. Philippine traders are now afraid to fill their warehouses, for fear of being called a hoarder. Even ordinary US shoppers are worrying that buying a big bag of rice might make them a hoarder. In this climate, it's worth thinking about what hoarding actually is.
Let me start by saying what it isn't. Stocking your pantry with goods that you're going to use isn't hoarding.
Hoarding is buying goods and storing them in the hope of selling them at a higher price.
Of course, there's an aspect to that in practically every business. Ordinary business behavior is different from hoarding mainly in that most businesses add value--the baker transforms the flour into bread, the butcher cuts up a carcass into steaks and chops. Just repackaging can add value--the wholesaler buys rice by the railcar and sells it in 50 pound sacks to the grocer who then sells it to shoppers by the pound.
Ordinary businesses also have a steady flow to their buying and selling. The gas station may have thousands of gallons of gasoline in its underground tanks, but that gasoline is for sale every day, not held off the market waiting for the price to go up.
A hoarder, though, doesn't add value by transforming the product in some useful way, nor does he make his money on the markup from wholesale to retail. He just buys stuff and holds on to it, hoping to sell after the price goes up.
Merely doing that is ethically neutral--often, in fact, beneficial. A clever hoarder will buy when prices are low (which is a source of price support for suppliers who would otherwise be suffering) and then sell when prices are high (providing supplies when there would otherwise be a shortage). If he makes a profit, it's a legitimate return on the capital that was tied up during a period of low prices. Buying low and selling high is not just a way to make money, it also helps stabilize the market, protecting both suppliers and consumers.
Hoarding becomes ethically objectionable when the hoarder waits until prices are already high, and then buys goods in the hope that prices will go even higher. That's not stabilizing. That can turn tight supplies into shortages and send prices up to where basic staples are beyond the means of all but the wealthy.
Note that this sort of hoarding is also not a very good way to make money. If supply and demand are already clearing, at whatever price, there's no particular reason to suppose that prices will go even higher. In fact, over the medium term--once suppliers have a chance to grow more or make more, and once consumers have a chance to adjust their habits to use less, you can expect prices to go back down. Hoarders buying at that point may drive the price up in a speculative frenzy, but once they start selling, the price will go right back down again, meaning that most of them won't make any money. They will, though, make the price gyrate. It's those price gyrations, together with the shortages caused by taking the product off the market, that make hoarding objectionable.
From an ethical point of view, there's no reason for ordinary consumers to worry that they might be doing something bad by stocking up. In fact, the stockpiles of ordinary consumers are a positive, stabilizing force when there are supply and price shocks, because the consumer with a stockpile will naturally limit purchases when there's a shortage. It's only the consumers with bare shelves who are buying when the price has just shot up.
Hoarding is a bad word, though--something that you wouldn't want to be accused of, even if you could make a reasoned argument about the stabilizing effects of stockpiles. In the US, we're not at the point of ugly mobs forming when someone carries a couple extra bags of rice out of the grocery store, but Americans are as good at forming ugly mobs as people anywhere.
Ethics aside, as a simple, practical matter, you don't want to be trying to build your stockpile after shortages are already in the news. Once that happens, cut back on use to make your current supplies last. Switch to stockpiling stuff that's still cheap--there's always something, unless times are very bad indeed. Especially during a time of shortages and soaring prices, there's no better investment.
Let me start by saying what it isn't. Stocking your pantry with goods that you're going to use isn't hoarding.
Hoarding is buying goods and storing them in the hope of selling them at a higher price.
Of course, there's an aspect to that in practically every business. Ordinary business behavior is different from hoarding mainly in that most businesses add value--the baker transforms the flour into bread, the butcher cuts up a carcass into steaks and chops. Just repackaging can add value--the wholesaler buys rice by the railcar and sells it in 50 pound sacks to the grocer who then sells it to shoppers by the pound.
Ordinary businesses also have a steady flow to their buying and selling. The gas station may have thousands of gallons of gasoline in its underground tanks, but that gasoline is for sale every day, not held off the market waiting for the price to go up.
A hoarder, though, doesn't add value by transforming the product in some useful way, nor does he make his money on the markup from wholesale to retail. He just buys stuff and holds on to it, hoping to sell after the price goes up.
Merely doing that is ethically neutral--often, in fact, beneficial. A clever hoarder will buy when prices are low (which is a source of price support for suppliers who would otherwise be suffering) and then sell when prices are high (providing supplies when there would otherwise be a shortage). If he makes a profit, it's a legitimate return on the capital that was tied up during a period of low prices. Buying low and selling high is not just a way to make money, it also helps stabilize the market, protecting both suppliers and consumers.
Hoarding becomes ethically objectionable when the hoarder waits until prices are already high, and then buys goods in the hope that prices will go even higher. That's not stabilizing. That can turn tight supplies into shortages and send prices up to where basic staples are beyond the means of all but the wealthy.
Note that this sort of hoarding is also not a very good way to make money. If supply and demand are already clearing, at whatever price, there's no particular reason to suppose that prices will go even higher. In fact, over the medium term--once suppliers have a chance to grow more or make more, and once consumers have a chance to adjust their habits to use less, you can expect prices to go back down. Hoarders buying at that point may drive the price up in a speculative frenzy, but once they start selling, the price will go right back down again, meaning that most of them won't make any money. They will, though, make the price gyrate. It's those price gyrations, together with the shortages caused by taking the product off the market, that make hoarding objectionable.
From an ethical point of view, there's no reason for ordinary consumers to worry that they might be doing something bad by stocking up. In fact, the stockpiles of ordinary consumers are a positive, stabilizing force when there are supply and price shocks, because the consumer with a stockpile will naturally limit purchases when there's a shortage. It's only the consumers with bare shelves who are buying when the price has just shot up.
Hoarding is a bad word, though--something that you wouldn't want to be accused of, even if you could make a reasoned argument about the stabilizing effects of stockpiles. In the US, we're not at the point of ugly mobs forming when someone carries a couple extra bags of rice out of the grocery store, but Americans are as good at forming ugly mobs as people anywhere.
Ethics aside, as a simple, practical matter, you don't want to be trying to build your stockpile after shortages are already in the news. Once that happens, cut back on use to make your current supplies last. Switch to stockpiling stuff that's still cheap--there's always something, unless times are very bad indeed. Especially during a time of shortages and soaring prices, there's no better investment.
Thursday, May 8, 2008
Some China firms outsourcing to USA to cut costs
By Xeni Jardin
An article in the LA Times this week on businesses from China bargain-hunting on operational costs by outsourcing to the USA:
Liu Keli couldn't tell you much about South Carolina, not even where it is in the United States. It's as obscure to him as his home region, Shanxi province, is to most Americans.
But Liu is investing $10 million in the Palmetto State, building a printing-plate factory that will open this fall and hire 120 workers. His main aim is to tap the large American market, but when his finance staff penciled out the costs, he was stunned to learn how they compared with those in China.
Liu spent about $500,000 for seven acres in Spartanburg -- less than one-fourth what it would cost to buy the same amount of land in Dongguan, a city in southeast China where he runs three plants. U.S. electricity rates are about 75% lower, and in South Carolina, Liu doesn't have to put up with frequent blackouts.
An article in the LA Times this week on businesses from China bargain-hunting on operational costs by outsourcing to the USA:
Liu Keli couldn't tell you much about South Carolina, not even where it is in the United States. It's as obscure to him as his home region, Shanxi province, is to most Americans.
But Liu is investing $10 million in the Palmetto State, building a printing-plate factory that will open this fall and hire 120 workers. His main aim is to tap the large American market, but when his finance staff penciled out the costs, he was stunned to learn how they compared with those in China.
Liu spent about $500,000 for seven acres in Spartanburg -- less than one-fourth what it would cost to buy the same amount of land in Dongguan, a city in southeast China where he runs three plants. U.S. electricity rates are about 75% lower, and in South Carolina, Liu doesn't have to put up with frequent blackouts.
Monday, April 28, 2008
Mars buying gum maker Wrigley with financing from Buffett
Mars agrees to buy gum maker Wrigley for about $23B with financing help from Warren Buffett
CHICAGO (AP) -- The Oracle of Omaha is betting that the country's candy jar is recession-proof.
With financing from Warren Buffett, candy maker Mars Inc. on Monday said it is buying confectioner Wm. Wrigley Jr. Co. for an estimated $23 billion in cash. The deal would marry brands that sweet-toothed Americans have munched on for decades: Mars owns Snickers and M&Ms; Wrigley's gum brands include Juicy Fruit, Orbit, Extra and Big Red.
ADVERTISEMENT
"A good time to buy a really great business is when you can do it," Warren Buffett said on CNBC Monday, adding that he understands Mars and Wrigley better than the balance sheets of most major banks.
Buffett's Berkshire Hathaway Inc. will purchase a $2.1 billion minority equity interest in the Wrigley subsidiary once the deal is completed. The Omaha, Neb.-based company also offered $4.4 billion of subordinated debt to fund the deal.
"In terms of Warren Buffett's sweet spot, these are exactly the kind of brands that he wants," said Jet Hollander, a former candy industry executive who is president of the snack food consulting firm Pre-Eminence Strategy Group.
If the buyout receives regulatory and shareholder approval, the combined companies would leapfrog over Britain's Cadbury Schweppes as the world's largest confection maker -- a move that's already fueling speculation that the buyout could spawn a round of candy industry consolidation.
"I look at it as two companies that see the opportunity to create a true global confectionary powerhouse," said Morningstar analyst Mitchell Corwin. "They become No. 1 in chocolate and No. 1 in chewing gum with a strong international presence and growth in emerging markets."
Under the agreement, shareholders at Chicago-based Wrigley would receive $80 in cash for each share. Mars will also assume less than $1 billion of Wrigley debt.
Executives said family owned Mars first began eyeing Wrigley in January and approached the company with their unsolicited bid in April 11. Since then, the two sides have haggled to reach the $80-per share offer -- a 28 percent premium to Wrigley's Friday closing price of $62.45.
Monday's announcement sent Wrigley's shares into overdrive, reaching an all-time high.
"I think this is a bold move, but beyond that, I think this is the right move," said Wrigley Chief Executive Bill Perez.
After the buyout is completed in six to 12 months, Wrigley would become a subsidiary of McLean, Va.-based Mars. Its headquarters will stay in Chicago, where the business has operated since it was founded by the Wrigley family in 1891. The Wrigley family will no longer hold any equity in the company.
"I have talked to some family members and I anticipate that they all will be very supportive of this, because it makes sense for really everybody," said Bill Wrigley Jr., the company's executive chairman and the fourth-generation family member to lead the business. "It's not just about selling out for dollars. It is more about what is the right thing and how can we grow going forward."
The company's name has been synonymous with Chicago for decades. The gum maker's ornate towering headquarters along the Chicago River is a favorite among tourists for snapping pictures. And the Chicago Cubs historic ballpark -- Wrigley Field -- got its name while the team was owned by the Wrigley family, which sold the franchise decades ago.
Executives said Wrigley would gain little benefit in weathering a run-up in commodities costs, but said the deal would allow the company to enhance its sales, marketing and distribution systems.
Among the early changes after the deal is complete, Wrigley would take over control of Mars' non-chocolate candy, including Starburst and Skittles.
Wrigley said the impact the company's 14,000 employees would be minimal. Wrigley will remain executive chairman and officials said the company's executive team would likely stay in place.
Officials said Wrigley's board, which unanimously approved the $80-per-share offer over the weekend, would examine any other offers submitted to the company.
But Citigroup analyst David Driscoll said he thought a competing offer would be unlikely.
"The only other likely buyer that we believe would benefit from acquiring Wrigley would be Hershey; but we view this as an unlikely outcome given the current situation," he told investors in a research note.
The Hershey Co. has struggled with flattening sales and rising commodity costs since late 2006 as it spends heavily to expand its overseas presence and cut back its work force in North America.
Meanwhile Monday, Wrigley said its first-quarter profit rose 18 percent, thanks to strong sales in Eastern Europe and Asia and a weakened U.S. dollar.
The company earned $168.6 million, or 61 cents per share during the January-through-March quarter. That's up from $142.7 million, or 52 cents, last year. Revenue climbed 16 percent to $1.45 billion last year. Analysts polled by Thomson Financial expected a profit of 55 cents per share on revenue of $1.39 billion.
Wrigley shares rose $14.46, or 23.2 percent, to close at $76.91.
http://www.mars.com
http://www.wrigley.com
CHICAGO (AP) -- The Oracle of Omaha is betting that the country's candy jar is recession-proof.
With financing from Warren Buffett, candy maker Mars Inc. on Monday said it is buying confectioner Wm. Wrigley Jr. Co. for an estimated $23 billion in cash. The deal would marry brands that sweet-toothed Americans have munched on for decades: Mars owns Snickers and M&Ms; Wrigley's gum brands include Juicy Fruit, Orbit, Extra and Big Red.
ADVERTISEMENT
"A good time to buy a really great business is when you can do it," Warren Buffett said on CNBC Monday, adding that he understands Mars and Wrigley better than the balance sheets of most major banks.
Buffett's Berkshire Hathaway Inc. will purchase a $2.1 billion minority equity interest in the Wrigley subsidiary once the deal is completed. The Omaha, Neb.-based company also offered $4.4 billion of subordinated debt to fund the deal.
"In terms of Warren Buffett's sweet spot, these are exactly the kind of brands that he wants," said Jet Hollander, a former candy industry executive who is president of the snack food consulting firm Pre-Eminence Strategy Group.
If the buyout receives regulatory and shareholder approval, the combined companies would leapfrog over Britain's Cadbury Schweppes as the world's largest confection maker -- a move that's already fueling speculation that the buyout could spawn a round of candy industry consolidation.
"I look at it as two companies that see the opportunity to create a true global confectionary powerhouse," said Morningstar analyst Mitchell Corwin. "They become No. 1 in chocolate and No. 1 in chewing gum with a strong international presence and growth in emerging markets."
Under the agreement, shareholders at Chicago-based Wrigley would receive $80 in cash for each share. Mars will also assume less than $1 billion of Wrigley debt.
Executives said family owned Mars first began eyeing Wrigley in January and approached the company with their unsolicited bid in April 11. Since then, the two sides have haggled to reach the $80-per share offer -- a 28 percent premium to Wrigley's Friday closing price of $62.45.
Monday's announcement sent Wrigley's shares into overdrive, reaching an all-time high.
"I think this is a bold move, but beyond that, I think this is the right move," said Wrigley Chief Executive Bill Perez.
After the buyout is completed in six to 12 months, Wrigley would become a subsidiary of McLean, Va.-based Mars. Its headquarters will stay in Chicago, where the business has operated since it was founded by the Wrigley family in 1891. The Wrigley family will no longer hold any equity in the company.
"I have talked to some family members and I anticipate that they all will be very supportive of this, because it makes sense for really everybody," said Bill Wrigley Jr., the company's executive chairman and the fourth-generation family member to lead the business. "It's not just about selling out for dollars. It is more about what is the right thing and how can we grow going forward."
The company's name has been synonymous with Chicago for decades. The gum maker's ornate towering headquarters along the Chicago River is a favorite among tourists for snapping pictures. And the Chicago Cubs historic ballpark -- Wrigley Field -- got its name while the team was owned by the Wrigley family, which sold the franchise decades ago.
Executives said Wrigley would gain little benefit in weathering a run-up in commodities costs, but said the deal would allow the company to enhance its sales, marketing and distribution systems.
Among the early changes after the deal is complete, Wrigley would take over control of Mars' non-chocolate candy, including Starburst and Skittles.
Wrigley said the impact the company's 14,000 employees would be minimal. Wrigley will remain executive chairman and officials said the company's executive team would likely stay in place.
Officials said Wrigley's board, which unanimously approved the $80-per-share offer over the weekend, would examine any other offers submitted to the company.
But Citigroup analyst David Driscoll said he thought a competing offer would be unlikely.
"The only other likely buyer that we believe would benefit from acquiring Wrigley would be Hershey; but we view this as an unlikely outcome given the current situation," he told investors in a research note.
The Hershey Co. has struggled with flattening sales and rising commodity costs since late 2006 as it spends heavily to expand its overseas presence and cut back its work force in North America.
Meanwhile Monday, Wrigley said its first-quarter profit rose 18 percent, thanks to strong sales in Eastern Europe and Asia and a weakened U.S. dollar.
The company earned $168.6 million, or 61 cents per share during the January-through-March quarter. That's up from $142.7 million, or 52 cents, last year. Revenue climbed 16 percent to $1.45 billion last year. Analysts polled by Thomson Financial expected a profit of 55 cents per share on revenue of $1.39 billion.
Wrigley shares rose $14.46, or 23.2 percent, to close at $76.91.
http://www.mars.com
http://www.wrigley.com
Sunday, April 27, 2008
Reptile store offers cooked insects to visitors
Carlinville family members (from left) Kelly Taylor-Wilson, Chance Wilson, 10, and Allie Wilson, 14, bite into their crickets at the same time at the 3rd Annual Customer Appreciation Day at The Tye-Dyed Iguana in Fairview Heights on Saturday.
Fairview Heights —With the sweet smell of barbecued cockroaches wafting through the air, "Chef" Dave Gracer, chopsticks in hand, poked around at a scorpion deep-frying in a pot of canola oil.
The crowd lined up in front of him, jockeying for their free spoonfuls of sauteed crickets and rice.
"It's a long story," Gracer says, recounting how he became one of the country's pre-eminent bug gourmets, "but basically I was a finicky eater as a kid. Then one year a friend gave me some mealworms as a birthday present, and that's how it started."
Now, nearly a decade later, the bespectacled writing teacher from Rhode Island has fashioned a second career out of entomophagy — the practice of eating bugs — lecturing around the country on the merits of insect consumption. Gracer wants to persuade people that eating bugs is actually quite normal, not just something for eccentrics with a taste for the unusual. Gracer points out that insects are a sustainable food source that has been consumed by certain cultures for centuries. Because insects are low on the food chain, they don't consume the resources that other protein sources — say chicken or pork — do.
On Saturday, he was the star attraction at the Tye-Dyed Iguana, an exotic reptile store holding its third "customer appreciation" event for its mostly tattooed, pierced and snake-and-lizard-loving clientele.
"I was looking for edible bug recipes on the Internet, and I just stumbled across him," said Matt Smallheer, the dreadlocked owner of the store. "He's a bug chef — that's what he does."
Smallheer knew it would be a perfect fit for his customers, so he invited Gracer to Fairview Heights, where the insect expert, along with some other attractions, drew nearly a thousand people — and their brave appetites.
"I ate cockroaches," said Lauren Case, a multiply pierced 22-year-old from Belleville. "They were very barbecue-saucy. They were pretty crunchy, and kind of gooey in the middle, sort of like when you have fat on a rib."
Case was lined up for more. Nearby, Craig Earland stood in the crowd, munching on some crickets.
"I lived in Korea for six years with the Air Force," Earland said. "I had scorpion, cockroach, dog, cat. This is nothing. I'm waiting on a scorpion. I had 'em boiled last time."
The bugs were not the only draw Saturday. Lizard Man — who has undergone 700 hours of tattoo work and is covered in reptilianesque scales — stood for photos with kids, sticking his forked tongue out for each shot.
Meanwhile, the real reptiles inside the store seemed to be getting some attention, too.
Nick Cleveland stood by the store's doorway, which was flanked by clean-cut young men from the Mormon Church, wearing their crisp white shirts.
"This is Aphrodite," Cleveland said, introducing the 8-foot-long Albino Burmese Python encircling his neck.
Not far away, kids were lined up to get pierced at the $20 piercing booth.
"This is much bigger than last year," said Bill Fox, the store's rodent caretaker, musing on the large crowd. "A lot of people who are into reptiles are into piercing. But there are also, I guess, what you'd call normal people here, too."
Despite Gracer's efforts to persuade, insects remain a hard sell.
Sheryl Hagen and her daughter Sydney picked at a plate of crickets, bracing themselves for the moment.
Sydney, 8, stuck one of them in her mouth and chewed for a moment. Then she leaned over, spit the bug out, and ran inside to the bathroom.
"She ate a cricket," her mom said, shrugging. "I ate one, too. It was crunchy. Not bad. But not for me."
For an audio slide show, click here:
http://www.stltoday.com/mds/news/html/1599
Monday, April 14, 2008
Retailing Chains Caught in a Wave of Bankruptcies
The consumer spending slump and tightening credit markets are unleashing a widening wave of bankruptcies in American retailing, prompting thousands of store closings that are expected to remake suburban malls and downtown shopping districts across the country.
Since last fall, eight mostly midsize chains — as diverse as the furniture store Levitz and the electronics seller Sharper Image — have filed for bankruptcy protection as they staggered under mounting debt and declining sales.
But the troubles are quickly spreading to bigger national companies, like Linens ‘n Things, the bedding and furniture retailer with 500 stores in 47 states. It may file for bankruptcy as early as this week, according to people briefed on the matter.
Even retailers that can avoid bankruptcy are shutting down stores to preserve cash through what could be a long economic downturn. Over the next year, Foot Locker said it would close 140 stores, Ann Taylor will start to shutter 117 and the jeweler Zales will close 100.
The surging cost of necessities has led to a national belt-tightening among consumers. Figures released on Monday showed that spending on food and gasoline is crowding out other purchases, leaving people with less to spend on furniture, clothing and electronics. Consequently, chains specializing in those goods are proving vulnerable.
Retailing is a business with big ups and downs during the year, and retailers rely heavily on borrowed money to finance their purchases of merchandise and even to meet payrolls during slow periods. Yet the nation’s banks, struggling with the growing mortgage crisis, have started to balk at extending new loans, effectively cutting up the retail industry’s collective credit cards.
“You have the makings of a wave of significant bankruptcies,” said Al Koch, who helped bring Kmart out of bankruptcy in 2003 as the company’s interim chief financial officer and works at a corporate turnaround firm called AlixPartners.
“For years, no deal was too ugly to finance,” he said. “But now, nobody will throw money at these companies.”
Because retailers rely on a broad network of suppliers, their bankruptcies are rippling across the economy. The cash-short chains are leaving behind tens of millions of dollars in unpaid bills to shipping companies, furniture manufacturers, mall owners and advertising agencies. Many are unlikely to be paid in full, spreading the economic pain.
When it filed for bankruptcy, Sharper Image owed $6.6 million to United Parcel Service. The furniture chain Levitz owed Sealy $1.4 million.
And it is not just large companies that are absorbing the losses. When Domain, the furniture retailer, filed for bankruptcy, it owed On Time Express, a 90-employee transportation and logistics company in Tempe, Ariz., about $30,000.
“We’ll be lucky to see pennies on the dollar, if we see anything,” said Ross Musil, the chief financial officer of On Time Express. “It’s a big loss.”
Most of the ailing companies have filed for reorganization, not liquidation, under the bankruptcy laws, including the furniture chain Wickes, the housewares seller Fortunoff, Harvey Electronics and the catalog retailer Lillian Vernon. But, in a contrast with previous recessions, many are unlikely to emerge from bankruptcy, lawyers and industry experts said.
Changes in the federal bankruptcy code in 2005 significantly tightened deadlines for ailing companies to restructure their businesses, offering them less leeway.
And the changes may force companies to pay suppliers before paying wages or honoring obligations to customers, like redeeming gift cards, said Sally Henry, a partner in the bankruptcy law practice at Skadden, Arps, Slate, Meagher & Flom and the author of several books on bankruptcy.
As a result, she said, “it’s no longer reorganization or even liquidation for these companies. In many cases, it’s evaporation.”
Several of the retailers that filed for Chapter 11 bankruptcy protection over the last eight months, like the furniture sellers Bombay, Levitz and Domain, have begun to wind down — closing stores, laying off workers and liquidating merchandise.
In most cases, the collapses stemmed from a combination of factors: flawed business strategies, a souring economy and banks’ unwillingness to issue cheap loans.
Bombay, a chain with 360 stores, was considered a success in the furniture world, after its sales surged from $393 million in 1999 to $596 million in 2003.
Then the chain decided to move most of its stores out of enclosed malls into open-air shopping centers. It started a children’s furniture business, called BombayKids. And it started carrying bigger items, like beds and upholstered couches, with higher prices than its regular furniture.
Consumers balked at the changes, hurting Bombay’s sales and profits at the same time that its expenses for the ambitious new strategies began to grow. The timing was unenviable: By early 2007, the housing market began to falter, so purchases of furniture slowed to a trickle.
The company was running out of money, but banks refused to lend more. “They did not want to take the chance that we might not repay the loans,” Elaine D. Crowley, the chief financial officer, said in an interview.
In September 2007, Bombay filed for bankruptcy protection. The highest bid for the company came from liquidation firms, who quickly dismembered the 33-year-old chain. Bombay, which once employed 3,608, now has 20 employees left. “It is very difficult and sad,” Ms. Crowley said.
The bankruptcies are putting a spotlight on a little-discussed facet of retailing: heavy debt.
Stores may appear to mint money by paying $2 for a T-shirt and charging $10 for it. But because shopping is based on weather patterns and fashion trends, retailers must pay for merchandise that may sit, unsold, on shelves for long periods.
So chains regularly borrow large sums to cover routine expenses, like wages and electricity bills. When sales are strong, as they typically are during the holiday season, the debts are repaid.
Fortunoff, a jewelry and home furnishing chain in the Northeast, relied on $90 million in loans to help operate its 23 stores, using merchandise as collateral.
But by early 2008, as the housing market struggled, the chain’s profits dropped, meaning its collateral was losing value and the amount it could borrow fell.
In better economic times, the banks might have granted Fortunoff a reprieve. But with a recession looming, they refused, forcing it to file for bankruptcy in February. In filings, the chain said it was “facing a liquidity crisis.” (Fortunoff was later sold to the owner of Lord & Taylor.)
Plenty of retailers remain on strong footing. Arnold H. Aronson, the former chief executive of Saks Fifth Avenue and a managing director at Kurt Salmon Associates, a retail consulting firm, said the credit tightness and consumer spending slowdown have only wiped out the “bottom tier” companies in retailing.
“This recession dealt the final blow to these chains,” he said. But several big-name chains are looking vulnerable. Linens ’n Things, which is owned by Apollo Management, a private equity firm, is considering a bankruptcy filing after years of poor performance and mounting debts, though it has additional options, people involved in the discussions said Monday.
Whether more chains file for bankruptcy or not, it will be hard to miss the impact of the industry’s troubles in the nation’s malls.
J. C. Penney, Lowe’s and Office Depot are scaling back or delaying expansion. Office Depot had planned to open 150 stores this year; now it will open 75.
The International Council of Shopping Centers, a trade group, estimates there will be 5,770 store closings in 2008, up 25 percent from 2007, when there were 4,603.
Charming Shoppes, which owns the women’s clothing retailers Lane Bryant and Fashion Bug, is closing at least 150 stores. Wilsons the Leather Experts will close 158. And Pacific Sunwear is shutting a 153-store chain called Demo.
Those decisions were made months ago, when it was unclear how long the downturn in consumer spending might last. If March was any indication, it is nowhere near over. Sales at stores open at least a year fell 0.5 percent, the worst performance in 13 years, according to the shopping council.
Since last fall, eight mostly midsize chains — as diverse as the furniture store Levitz and the electronics seller Sharper Image — have filed for bankruptcy protection as they staggered under mounting debt and declining sales.
But the troubles are quickly spreading to bigger national companies, like Linens ‘n Things, the bedding and furniture retailer with 500 stores in 47 states. It may file for bankruptcy as early as this week, according to people briefed on the matter.
Even retailers that can avoid bankruptcy are shutting down stores to preserve cash through what could be a long economic downturn. Over the next year, Foot Locker said it would close 140 stores, Ann Taylor will start to shutter 117 and the jeweler Zales will close 100.
The surging cost of necessities has led to a national belt-tightening among consumers. Figures released on Monday showed that spending on food and gasoline is crowding out other purchases, leaving people with less to spend on furniture, clothing and electronics. Consequently, chains specializing in those goods are proving vulnerable.
Retailing is a business with big ups and downs during the year, and retailers rely heavily on borrowed money to finance their purchases of merchandise and even to meet payrolls during slow periods. Yet the nation’s banks, struggling with the growing mortgage crisis, have started to balk at extending new loans, effectively cutting up the retail industry’s collective credit cards.
“You have the makings of a wave of significant bankruptcies,” said Al Koch, who helped bring Kmart out of bankruptcy in 2003 as the company’s interim chief financial officer and works at a corporate turnaround firm called AlixPartners.
“For years, no deal was too ugly to finance,” he said. “But now, nobody will throw money at these companies.”
Because retailers rely on a broad network of suppliers, their bankruptcies are rippling across the economy. The cash-short chains are leaving behind tens of millions of dollars in unpaid bills to shipping companies, furniture manufacturers, mall owners and advertising agencies. Many are unlikely to be paid in full, spreading the economic pain.
When it filed for bankruptcy, Sharper Image owed $6.6 million to United Parcel Service. The furniture chain Levitz owed Sealy $1.4 million.
And it is not just large companies that are absorbing the losses. When Domain, the furniture retailer, filed for bankruptcy, it owed On Time Express, a 90-employee transportation and logistics company in Tempe, Ariz., about $30,000.
“We’ll be lucky to see pennies on the dollar, if we see anything,” said Ross Musil, the chief financial officer of On Time Express. “It’s a big loss.”
Most of the ailing companies have filed for reorganization, not liquidation, under the bankruptcy laws, including the furniture chain Wickes, the housewares seller Fortunoff, Harvey Electronics and the catalog retailer Lillian Vernon. But, in a contrast with previous recessions, many are unlikely to emerge from bankruptcy, lawyers and industry experts said.
Changes in the federal bankruptcy code in 2005 significantly tightened deadlines for ailing companies to restructure their businesses, offering them less leeway.
And the changes may force companies to pay suppliers before paying wages or honoring obligations to customers, like redeeming gift cards, said Sally Henry, a partner in the bankruptcy law practice at Skadden, Arps, Slate, Meagher & Flom and the author of several books on bankruptcy.
As a result, she said, “it’s no longer reorganization or even liquidation for these companies. In many cases, it’s evaporation.”
Several of the retailers that filed for Chapter 11 bankruptcy protection over the last eight months, like the furniture sellers Bombay, Levitz and Domain, have begun to wind down — closing stores, laying off workers and liquidating merchandise.
In most cases, the collapses stemmed from a combination of factors: flawed business strategies, a souring economy and banks’ unwillingness to issue cheap loans.
Bombay, a chain with 360 stores, was considered a success in the furniture world, after its sales surged from $393 million in 1999 to $596 million in 2003.
Then the chain decided to move most of its stores out of enclosed malls into open-air shopping centers. It started a children’s furniture business, called BombayKids. And it started carrying bigger items, like beds and upholstered couches, with higher prices than its regular furniture.
Consumers balked at the changes, hurting Bombay’s sales and profits at the same time that its expenses for the ambitious new strategies began to grow. The timing was unenviable: By early 2007, the housing market began to falter, so purchases of furniture slowed to a trickle.
The company was running out of money, but banks refused to lend more. “They did not want to take the chance that we might not repay the loans,” Elaine D. Crowley, the chief financial officer, said in an interview.
In September 2007, Bombay filed for bankruptcy protection. The highest bid for the company came from liquidation firms, who quickly dismembered the 33-year-old chain. Bombay, which once employed 3,608, now has 20 employees left. “It is very difficult and sad,” Ms. Crowley said.
The bankruptcies are putting a spotlight on a little-discussed facet of retailing: heavy debt.
Stores may appear to mint money by paying $2 for a T-shirt and charging $10 for it. But because shopping is based on weather patterns and fashion trends, retailers must pay for merchandise that may sit, unsold, on shelves for long periods.
So chains regularly borrow large sums to cover routine expenses, like wages and electricity bills. When sales are strong, as they typically are during the holiday season, the debts are repaid.
Fortunoff, a jewelry and home furnishing chain in the Northeast, relied on $90 million in loans to help operate its 23 stores, using merchandise as collateral.
But by early 2008, as the housing market struggled, the chain’s profits dropped, meaning its collateral was losing value and the amount it could borrow fell.
In better economic times, the banks might have granted Fortunoff a reprieve. But with a recession looming, they refused, forcing it to file for bankruptcy in February. In filings, the chain said it was “facing a liquidity crisis.” (Fortunoff was later sold to the owner of Lord & Taylor.)
Plenty of retailers remain on strong footing. Arnold H. Aronson, the former chief executive of Saks Fifth Avenue and a managing director at Kurt Salmon Associates, a retail consulting firm, said the credit tightness and consumer spending slowdown have only wiped out the “bottom tier” companies in retailing.
“This recession dealt the final blow to these chains,” he said. But several big-name chains are looking vulnerable. Linens ’n Things, which is owned by Apollo Management, a private equity firm, is considering a bankruptcy filing after years of poor performance and mounting debts, though it has additional options, people involved in the discussions said Monday.
Whether more chains file for bankruptcy or not, it will be hard to miss the impact of the industry’s troubles in the nation’s malls.
J. C. Penney, Lowe’s and Office Depot are scaling back or delaying expansion. Office Depot had planned to open 150 stores this year; now it will open 75.
The International Council of Shopping Centers, a trade group, estimates there will be 5,770 store closings in 2008, up 25 percent from 2007, when there were 4,603.
Charming Shoppes, which owns the women’s clothing retailers Lane Bryant and Fashion Bug, is closing at least 150 stores. Wilsons the Leather Experts will close 158. And Pacific Sunwear is shutting a 153-store chain called Demo.
Those decisions were made months ago, when it was unclear how long the downturn in consumer spending might last. If March was any indication, it is nowhere near over. Sales at stores open at least a year fell 0.5 percent, the worst performance in 13 years, according to the shopping council.
Saturday, April 5, 2008
A nice pizza change
Fourteen years ago, Chris Clark shelled out 20 bucks to register the domain name "pizza.com." This afternoon, he sold it for $2.6 million.
"It's crazy, it's just crazy," he said somewhat giddily yesterday morning from his home in North Potomac. By then, a week's worth of anonymous bidding at an online auction site had pushed the price to today's high. The auction closed at 2 p.m. today.
"That amount of money is significant," said Clark, 43, who recently launched a software company. "It will make a significant difference in my life, for sure."
"It's crazy, it's just crazy," he said somewhat giddily yesterday morning from his home in North Potomac. By then, a week's worth of anonymous bidding at an online auction site had pushed the price to today's high. The auction closed at 2 p.m. today.
"That amount of money is significant," said Clark, 43, who recently launched a software company. "It will make a significant difference in my life, for sure."
Subscribe to:
Posts (Atom)