Blockbuster Edges Closer to Bankruptcy Filing

The economic recession may be "officially" over, but its lingering effects--high unemployment, tight credit and shoppers watching every penny--are combining to create a still-tough business environment for retailers large and small that are operating in a wide range of verticals. Companies as varied as A&P, Trans World Entertainment, Borders, Barnes & Noble, Liz Claiborne, Rite Aid and Pacific Sunwear have all posted disappointing financial results in recent quarters, and they and many others are on financial analysts' "critical list."

For retailers that were already facing challenges, the sluggish pace of economic recovery has exacerbated their woes. Continued weakness in the housing sector has sent ripples into the home furnishings market, contributing to the recent bankruptcy filings for Gracious Home in August and Jennifer Convertibles in July.

Changes in the delivery methods for home entertainment, with snail mail (Netflix.com), self-service kiosks (Redbox) and on-demand technologies elbowing aside store-based rentals, helped push Movie Gallery into Chapter 11 protection in February 2010. Now, a name once synonymous with movie rentals, Blockbuster, reportedly plans to declare bankruptcy in mid-September. If this occurs, this will be the fourteenth retail company to do so this year.

According to published reports, Blockbuster hopes to enter a pre-planned bankruptcy for approximately five months in order to restructure a debt load of nearly $1 billion and escape leases on 500 to 800 of its worst-performing stores. The Dallas-based retailer currently operates 3,425 U.S. stores, and it has already closed nearly 1,000 stores in the past year alone. For the quarter that ended July 4, 2010, Blockbuster posted a 19.7% drop in total revenues to $788 million, from $982 million from the same period in 2009. Net losses for the period were $69 million, affected both by store closings and declines in comp-store sales.

The recession has already forced dozens of retailers into bankruptcy. Since 2008, high-profile retailers including Circuit City, Filene's Basement, Eddie Bauer, Crabtree & Evelyn, Ritz Camera, Penn Traffic supermarkets and Fortunoff have all reorganized or liquidated. While a bankruptcy filing doesn't necessarily mean the end for a company (as General Motors can attest), and many factors can contribute to a company's decision to seek Chapter 11 protection, it seems clear that retail has been hit hard--and that the industry's troubles are far from over.

The following retail companies declared bankruptcy during 2010:

Gracious Home: Filed Chapter 11 on August 13, 2010 in Manhattan, NY.

Jennifer Convertibles Inc.: Filed Chapter 11 on July 18, 2010 in Manhattan, NY.

Controladora Comercial Mexicana, S.A.B. de C.V.: Filed Chapter 15 on July 16, 2010 in the Southern District of New York and a Mexican Judge accepted their insolvency petition. They hope to finish restructuring by the end of 2010.

Riviera Holdings Corporation: Filed Chapter 11 on July 12, 2010 in Las Vegas, NV.

Planet Organic: Sold its assets to creditor Catalyst Capital Group to wipe out $31.1 million in debt. Deal closed on June 4, 2010.

Gems TV: Filed Chapter 11 on April 5, 2010 in Wilmington, DE and is liquidating its assets.

Rock & Republic: Filed Chapter 11 on April 1, 2010 in New York, NY. It plans to reorganize.

BKV, Inc, d.b.a. Tellos: Filed Chapter 11 on March 19, 2010 in Boston, MA. It plans to close three of its eight clothing stores.

Swoozie's, Inc.: Filed Chapter 11 in Atlanta, GA on March 2, 2010 and was purchased by Gart Capital Partners.

Movie Gallery, Inc.: Filed Chapter 11 in Virginia on February 2, 2010. It plans to close all of its stores.

Southern Golf Partners: Filed Chapter 11 on January 20, 2010 in Atlanta, GA.

Bernie's Audio Video TV Appliance: Filed Chapter 11 on January 14, 2010 in Hartford, CT and is liquidating.

E.R.T. Sales of Hawaii: Filed Chapter 11 on January 12, 2010 in Hawaii and plans to reorganize.

For related content see: Blockbuster Bankruptcy in Works Could Shut 800 Stores
Bankruptcy Watch: Eight Retailers in the Red
10 Retailers Struggling to Survive
10 Retail Candidates for the Endangered Species List
10 Bankruptcies That Rocked Retailing in 2010
31 Retail Bankruptcies in 2009, Three More Retailers Join List