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Bernie's Succumbs To Weak Economy

1/15/2010 11:25:48 AM Eastern

Enfield, Conn. - High
costs, low margins and the protracted economic downturn in New England is what
ultimately did in Bernie's, according to court documents and the company's
attorney.

The family- and
employee-owned A/V, majap and furniture chain, with 15 leased stores in
Connecticut, Delaware and Massachusetts, filed
for Chapter 11 bankruptcy protection yesterday
, and liquidation sales, to
be conducted by Hilco Merchant Resources, are expected to begin later today
pending approval by a U.S. Bankruptcy Court in Hartford, Conn.

The Chapter 11 sales
will continue through February.

According to longtime
Bernie's
attorney Marc Needelman, the regional dealer had successfully competed against
local CE chains like Crazy Eddie and The Wiz, and was able to fend off
encroachment by national discounters until the recession ultimately took its
toll.

"The company was
the victim of the protracted economic downturn and challenging retail
environment," Needelman said.

Indeed, court
filings show that Bernie's losses ballooned from $234,000 in 2008 to $1.9
million last year on sales of $112.2 million. The losses stemmed from lower
sales volume and reduced margins, the company said, and caused it to default on
about $12.7 million in loans with its chief secured lender Citizens Bank.

Last month Bernie's
hired a management consultant, Altman & Co., which considered a number of
alternatives including reducing the number of stores and shutting its six-year-old
central distribution center, here. The warehouse is part of a 185,000-square-foot,
leased complex located on an 18-acre campus that also seats the company's
headquarters and Enfield, Conn., store.

Bernie's also
explored the sale of the business as a going concern without success, and
brought in Hilco in early January to begin preparing for the store-closing
sales.

The company's
largest creditors include GE Money Bank, owed $730,767; Toshiba, owed $509,307;
Monster Power, owed $298,140; and Haier America, owed $250,172.

Other industry
creditors include OmniMount ($167,218); Bose ($67,642); Whirlpool ($62,059);
and LG Electronics ($49,092).

Connecticut Attorney
General Richard Blumenthal said Bernie's assured his office that it intends to
honor consumer deposits and upwards of $200,000 in unredeemed gift cards.

Blumenthal said Bernie's
will also seek court approval to honor any returns and to complete special
orders awaiting delivery, or provide refunds if items are not in stock.

Company attorney
Needleman added that extended service plans sold by Bernie's will continue to
be honored by third-party providers.

According to a
report in the Hartford Courant, CEO Milton Rosenberg told employees of the bankruptcy
filing and plans to cease operations on a companywide conference call yesterday
afternoon.

The retailer was
founded as a gas station by Rosenberg's father Bernie in 1947. The five-store
chain was bought by Newmark & Lewis in 1985, and was reacquired six years
later by Rosenberg, who rebuilt the business from a two-store operation into a
regional big-box chain with plans to expand into Boston and beyond.

According to
industry observers, the loss of Bernie's, and before that Tweeter, leaves an
entree into the New England market for multiregional chains P.C. Richard &
Son and hhgregg. The former, which carries a similar mix of CE and majaps,
already opened its first big-box store in Connecticut last year, while hhgregg
is rapidly expanding along the East Coast with stores planned as far north as
the Atlantic City, N.J., area.

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