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High costs, low margins and the protracted economic downturn in New England are 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 on Jan. 14. Liquidation sales conducted by Hilco Merchant Resources began the next day following approval by a U.S. Bankruptcy Court in Hartford, Conn.
The going-out-of-business sales are expected to 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.
Bernie's did not attend International CES and earlier this month withdrew its membership from the NATM Buying Corp. NATM president Bill Trawick called it a “tragedy” that a company of that size was struggling, and described the situation as an unfortunate sign of the times. “It's very, very tough out there and I hope this trend doesn't continue,” he told TWICE.
Bernie's president/COO Mike Honeyman formally left the company in early January, following the departure of marketing and merchandising VP John Schlenner and a number of the chain's buyers.
According to TWICE's Top 100 Retailers Report, Bernie's sold approximately $63 million in CE in 2008, up 1.6 percent from the prior year, placing it at No. 80 on the CE dealers chart. The chain had $53 million in major appliance sell-through that year, down nearly 12 percent from 2007, and ranked 36th on the TWICE Majap Top 100.
Industry observers believe 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, which carry a similar mix of CE and majaps. P.C. Richard 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.
Bernie's was founded as a gas station in 1947 by Bernie Rosenberg. The company was bought by Newmark & Lewis in 1985, and was re-acquired six years later by Rosenberg's son, CEO Milton Rosenberg, who re-built the business from a two-store operation into a regional chain with plans to expand into Boston and beyond.
According to a report in the Hartford Courant, Rosenberg informed employees of the bankruptcy and planned to cease operations on a companywide conference call on the afternoon of the filing.
Under an employee stock ownership plan (ESOP) established during the company's growth years, Bernie's workers had a 30 percent stake in the business, while Rosenberg maintained a majority position.
Bernie's 350 employees will continue to receive pay and benefits until their respective stores close, thanks in part to what the company's bankruptcy attorney, Barry S. Feigenbaum, described to New London, Conn., daily newspaper The Day as “a substantial financial contribution out of his personal funds.”
Calls to Rosenberg were not returned.
This TWICE webinar, hosted by senior editor Alan Wolf, will take a look at what may be the hottest CE products at retail that will be sold during the all-important fourth quarter. Top technologies, market strategies and industry trends will be discussed with industry analysts and executives.