Lack's begin liquidation proceedings

Court approves Hilco, SB Capital to oversee sale

Clint Engel -- Furniture Today, November 19, 2010

VICTORIA, Texas — Lack's Stores here has begun liquidating all 36 Texas stores after filing for Chapter 11 bankruptcy protection early this week, blaming its lenders for no longer wanting to finance customer accounts.

On its website, www.lacks.com, the Top 100 company is promoting discounts of 30%-50% on all furniture, accessories, appliances and electronics.

Lack's received court approval to hire Hilco Merchant Resources and SB Capital Group to run the liquidation sales from now until no later than Feb. 13. Lack's President and CEO Melvin Lack has declined to say how much money the sale is projected to raise.

In its Nov. 16 bankruptcy filing, the retailer listed assets and debts both in the $100 million to $500 million range, including some $86 million it owes to lenders providing customer financing.

Its largest unsecured industry creditors are owed more than $7.3 million in claims, according to court documents. Sealy is listed as Lack's largest unsecured creditor, owed $3.05 million. Lane Furniture is the second largest, owed $2.8 million.

Other industry creditors include Corinthian, owed $363,921; Steve Silver, $229,132; Standard Furniture, $194,327; Global Link Logistics, $137,733; Najarian, $128,617; Oak Furniture West, $95,104; Legends Furniture, $93,588; Progressive Furniture, $84,871; Lifestyle Enterprise, $73,937; and Presidential, $73,410.

In comments to Furniture/Today and court documents, the credit-oriented, promotional to midpriced Lack's laid the blame for the bankruptcy move on its lenders and a credit squeeze. Despite the retailer's improving operations in 2009 and this year and its gradual pay down of the balance owed on its senior credit facility, the lenders would not refinance or restructure its obligations under terms that would allow it to continue operating, court documents say.

Lack's hasn't been able to find new financing "since the overwhelming majority of their customers are rated sub-prime," and despite the retailer's strong track record of payments and collections, it said.

CIT Group/Business Credit, a lender and agent to other secured lenders to Lack's, including PNC Bank, and JPMorgan Chase Bank, has objected to Lack's court request to use cash collateral on the liquidation process, calling it "irresponsible." CIT requested that the court limit cash collateral use to two weeks at a time.

The objection charges Lack's is "requesting authority to spend CIT's collateral just as if they were continuing full scale operations," and said the retailer's conduct before the filing deserves investigation. CIT alleges Lack's diverted more than $626,000 in collateral proceeds Nov. 12 "in direct contravention of the loan agreement."

"On that same day, the debtors represented to CIT that those very proceeds had been wired to CIT in connection with a request for approximately $1.1 million in new advances," the document said.

Before the 2008 recession, Lack's annual sales exceeded $200 million in 39 stores and it employed 1,200 associates, the retailer said in the press release.

"After the recession began in 2008, the company experienced a 20% drop in sales and was forced to make dramatic cuts in expenses, including the termination of 300 of its associates," it said. Those efforts helped return the company to profitability and it continued to be profitable this year, the release said.

Lack's is No. 51 on Furniture/Today's Top 100 with 36 stores in central, southern and western Texas and estimated furniture, bedding and accessories sales of $101 million in 2009, down from an estimated $112 million the year before.

"I find it very sad that banks such as CIT and JP Morgan Chase, among others, who have received TARP (Troubled Asset Relief Program) funds and government support in order to save them and help the economy, have not shown support for businesses like ourselves," Melvin Lack told Furniture/Today before the filing.

"I am very saddened about the effect this will have on the over 800 associates who will be terminated at the conclusion of our liquidation sale."

Asked if Lack's has experienced late-payment issues to industry suppliers, as some have indicated to Furniture/Today, Lack said that may have been the case in "the last couple of weeks" as lenders made extension of loan terms difficult.

"Based on what they were offering, we saw that we would run out of cash in January," he said.

In a court documents the company, which sells furniture, electronics and appliances, said it has generated revenue of more than $122 million from all products so far this fiscal year beginning Feb. 1, and operating profit of more than $1 million.

Among the closing stores are five in San Antonio, three in Austin, two each in Corpus Christi, Victoria and Lubbock, and one each in Beeville, Sinton, Portland, Alice, Bay City, Clute, El Campo, Port Lavaca, New Braunfels, College Station, Midland, Odessa, Temple, Killeen, Waco, San Angelo, Abilene, Tyler, Lufkin, Del Rio, Uvalde and Longview, Texas.

Lack's Stores is a separate company from another Top 100 Texas store chain with a similar name, Lacks Valley Stores, based in Pharr.

Staff Writer Heath E. Combs contributed to this story.