Ovation, the high-end, eight-store specialty A/V chain based here, has filed a voluntary petition for Chapter 11 bankruptcy protection.
The action, taken Oct. 14 in U.S. Bankruptcy Court in the Southern District of Indiana, was prompted by a credit crunch that prevented the cash-strapped company from obtaining sufficient premium merchandise to stock its eight stores.
According to founder, president and owner Gary McCormick, the company has crafted a restructuring and financing plan that will allow it to streamline operations and lower its cost structure while maintaining inventory levels through the critical pre- and post-holiday selling season. Ovation will continue to operate all eight existing stores in Indiana, Kentucky and Ohio.
“Our customers will see no changes as we work through this reorganization, and when finalized next year, Ovation will be stronger than ever,” McCormick said.
McCormick, who founded the company in 1986 after selling his earlier specialty chain, Hi-Fi Buys, attributed the filing in part to “price competition from superstores and big-box retailers.” He noted that the business struggled to improve operations, close underperforming stores and boost sales over the past 18 months, but “despite all of our efforts, it wasn't enough.”
Ovation closed two stores in 2004 and 2005, but also opened two new stores and acquired a custom installation business last year. According to Roger Heuberger, president/executive director of Ovation's buying group, the Progressive Retailers Organization (PRO Group), the “extraordinary expenses” overtaxed the company's resources and impacted its financial performance.
That in turn prompted vendors to tighten their credit terms with Ovation, which led to inventory shortfalls and lost retail sales.
Heuberger said that until two weeks ago Ovation had simply been looking to recapitalize. But when a financing arrangement did not pan out, the company opted to file for Chapter 11 before the new Bankruptcy Reform Act of 2005 went into effect on Oct. 17 along with less favorable tax provisions. Ovation now has prepackage financing in place and has put together a business plan with its lender that will allow the chain to operate on a go-forward basis, he said.
Heuberger added that the vendor community continues to be supportive of Ovation. “The vendors are as enthusiastic as one can be about a reorganization,” he said. “I don't know of many who won't continue to sell them. There's a lot of interest [among manufacturers] in having A/V dealers like Gary in business.”
Ovation's top creditors include Monster Cable, Sony, Klipsch, LG, Denon, JL Audio and Definitive Technology.
McCormick said that some of Ovation's 161 positions would be eliminated as a result of the restructuring, although the company's stand-alone Ovation Home unit, which markets home entertainment systems to the builders' channel, would not be affected by the reorganization.
“The restructuring will enhance Ovation's long-term viability by giving us the time needed to implement our restructuring plan to carefully streamline overall operations, while growing sales from existing stores and strengthening our custom installation business, our fastest growing segment,” McCormick said.
McCormick also serves as VP/treasurer of PRO Group.