Why Businesses Go Bankrupt: Shane Company

/in , /by

Shane Company, a family-owned $200 million jewelry retailer filed for Chapter 11 bankruptcy early in 2009, partly attributing “cost overruns and functionality problems on an SAP software implementation,”  “ComputerWorld” reported.  The company also acknowledged that the recession, and slow holiday sales were the biggest cause of its problems, as sales slumped from $275 million in 2007 to between $207 and $210 million in 2008.  The SAP implementation had cost Shane $36 million by the time they pulled the plug vs. an original cost bid of $8 to $10 million, and had also caused Shane to become “substantially overstocked with inventory, and with the wrong mix of inventory.”  But here’s a question for Shane management: What systems and business practices were they using to manage inventory on their way to becoming a $275 million company, and why didn’t they keep things in place as they were until thoroughly testing the new SAP system, and then cutting over, to protect against the ensuing problems.

Lesson Learned:  Company managers have to take responsibility for the business systems they recommend for purchase and their subsequent implementation.   While competitor Blue Nile was riding out the recession with less than a 6% revenue decline in 2008, Shane’s 25% revenue decline meant there was little or no leeway for a botched  SAP implementation.

Comfort Restaurant looked to Customers for Financing

/in , /by

After Comfort Restaurant in Hastings-on-Hudson was denied more traditional financing needed to move into a bigger space on the other side of Warburton Avenue, chef owner John Halko successfully tapped his loyal customers for about $25,000 of precious capital, by selling them V.I.P cards, good for discounted meals for up to two years.  As a result, Halko was able to open Comfort Lounge in May of this year.   In a recent review, “NY Times” critic Emily Denitto told readers that Comfort Lounge is “serving up intriguing food with a refreshing focus on healthy ingredients and various cultural influences.”  Decor is still being worked out, reported Denitto, “cushions are planned for the banquette, and there is a promise of some kind of art for the walls.”

Why Businesses go Bankrupt: Tavern on the Green

/1 Comment/in , , /by

Manhattan icon Tavern on the Green filed for bankruptcy under chapter 11 earlier this month, with chief executive Jennifer Oz LeRoy citing “extreme financial distress brought on by the current financial crisis and the City of New York’s decision not to renew our lease, as the dual factors behind the decision.” Described as “more spectacle than restaurant” in the 2008 Zagat guide, Tavern was informed by New York City’s Department of Parks and Recreation on August 28th that its lease would not be renewed, with the new 20-year lease for the space instead going to Dean Poll, who runs the Boathouse restaurant in Central Park.

A visitor to Tavern from Cave Creek, Arizona told Zagat in May of 2009: “The only thing worse than the food was the service!!! Absolutely a waste of time, after such a big build up. Food was bland, served lukewarm, like a low budget cruise ship or Las Vegas hotel. When I asked the waiter about a wine pairing, he pointed at the menu with his pen and rolled his eyes. Absolutely no substitutions or accommodations from the kitchen, [the] waiter explained that the kitchen staff is miserable.”

The kitchen staff probably became even more miserable to hear about the bankruptcy, especially given that Tavern owed $1.7 million to the pension and health benefits funds managed by the New York Hotel & Motel Trades Council, the union that represents Tavern’s 400-plus employees.  Ms. LeRoy, who is hoping for a busy final four months until Tavern’s lease expires at year end, said in a statement that the restaurant plans to honor all of its obligations to its loyal employees.

Lesson Learned: In today’s recessionary environment, customers are looking for tasty food at prices that represent a good value, as opposed to glitzy decor.  As “Entrepreneur” explained in their November 2009 article about new trends in the restaurant trade: “Plush dining rooms, star chefs and menus built around foie gras and truffles feel outdated – while rooms that are simple, with a personal touch, feel right.”

Why Businesses go Bankrupt: The Tribune Company

/in , /by

When Sam Zell completed an $8.2 billion acquisition of the Tribune Company with an equity investment of only $315 million, he was described alternately as “reckless” and a “genius” by the financial press.  Zell’s main strategy was to sell assets and deleverage his position, but plans to sell the Food Network fell through, while plans to sell Wrigley Field and the Chicago Cubs were delayed, and Zell took the Tribune Company (excluding the baseball franchise) into bankruptcy in December of 2008.  On October 13th 2009, a U.S. bankruptcy judge ruled that the Tribune Company could sell the Chicago Cubs to the Ricketts family for $845 million.  In conjunction with the sale of the team, the Chicago Cubs filed for a separate bankruptcy, designed to protect its new owners from claims from Tribune Company creditors, the “Chicago Tribune” reported.

Lesson Learned: Allow a little extra time for the sale of complex assets in your business plans, especially if that is critical to your financial survival.

4/19/2011 update:  The Wall Street Journal reported today that the Tribune’s former creditors are suing the banks who financed Zell’s acquisition, and the former shareholders who received the $8 billion payout, under a legal concept known as “fraudulent transfer”, arguing that the deal was so fundamentally flawed, they should have known it would destroy the Tribune.


 


Why Businesses go Bankrupt: Nortel

/in , /by

Telecommunications equipment maker Nortel’s market capitalization reached a peak of $250 billion in 2000, giving it the financial wherewithal to lay out $15 billion for the acquisition of switch makers Bay Networks and Alteon WebSystems.   But the company failed to leverage its acquisitions, and did not keep up with changing technology in its core markets.  An accounting fraud which came to light in 2005 didn’t help matters.  Nortel filed for bankruptcy in January of this year and is being auctioned off in pieces, with bidding interest from Avaya, Cisco and Siemens.

Lesson Learned: Have a solid plan in place to fully integrate acquisitions, and execute it well!