A Lesson from RoomStores Bankruptcy

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Late last December, longtime Phoenix retailer, the RoomStore furniture chain, filed for Chapter 11 business bankruptcy. With it, came a lesson for all retail stores that are still struggling in the wake of the financial crisis: you have to be nimble.

A Lesson from RoomStores Bankruptcy

In the company’s petition for Chapter 11 reorganization, officials stated that The RoomStores of Phoenix LLC was filing for bankruptcy because of the 2008 housing crash as well as increased competition between other furniture retailers.

“Even when the market began to improve, competition among furniture retailers in the same genre increased significantly and the Company could no longer generate the revenues it had accomplished in the past,” wrote executives in the petition.

Chapter 11

The company has asked for court protection from creditors under Chapter 11 as it tries to restructure.

Co-owner Alan Levitz said he hoped to be able to avoid layoffs and store closures. “There is hope, yes,” Levitz said. “Employees may be subject to layoffs. I am saying there may be layoffs rather than there will be.”

Levitz was also hopeful that proceeds from planned promotional sales would allow executives to negotiate with creditors, so that the company could “retain its existing footprint.”

“We still have good relations with our vendors and we have incoming goods,” Levitz said. “We expect to fill the majority of existing orders.”

The RoomStores

As of December, the RoomStores, was operating 11 showrooms in Arizona, including nine in the Valley, one in Casa Grande and one in Prescott. The store launched in 1993 and for a while was one of the more successful stores in Arizona. It has since had to deal with strong competition in the last few years.

“The marketplace in Phoenix has become a lot more competitive in the past three years,” said Levitz. “We enjoyed a strong position in the marketplace 20 years prior to that.”

Levitz decided to look into filing for bankruptcy after “recognizing the immediate need to stem the losses, maintain cash flow and find a solution that would protect vendors and other creditors.”

According to officials, the furniture stores owes up to 5,000 creditors. Estimated assets include $8 million in furniture, $250,000 in accounts receivable, and $325,000 in fixtures and equipment.

A Lesson from RoomStores

According to Christie Kerner, assistant director of Arizona State University’s Center for Entrepreneurship at the W.P. Carey School of Business, furniture retailers have become victims to the change in the way that people buy their furniture.

As we’ve seen time and time again, online businesses have made a mess of traditional brick-and-mortar businesses because of their ability to provide low-cost and hassle-free purchase options. Kerner pointed to another Arizona-based store called Tuft and Needle. The mattress store is run by owners that immersed themselves in the science of mattress design. That in turn allowed them the opportunity to sell mattresses online for thousands of dollars less than brand-name manufacturers.

“They decided to create one product and knock it out of the park,” she said. “It’s less about the hype and more about the innovation.”

As Kerner advises, in this new way of selling products, retailers need to be nimble and innovative in order to capture market share.

Working with a Bankruptcy Attorney

A business Bankruptcy can be an overwhelming process. That’s why we advise that you work with a phoenix business bankruptcy lawyer that is familiar with various debt repayment options. We are committed to helping our clients understand their rights and options under the bankruptcy law and developing the debt relief solution that makes the most sense for each individual. We invite you to call (602) 648-3274 or contact our Arizona office to schedule a free initial consultation.

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