KB Toys to begin liquidation sale tomorrow
Holiday timing called critical to success
WILMINGTON, Del. - A Delaware bankruptcy judge yesterday authorized KB Toys to begin going-out-of-business sales.
Judge Kevin Carey granted the company's request after attorneys said they had resolved several concerns of landlords and creditors about rent and other issues.
The Pittsfield, Mass.-based company plans to start liquidation sales today, with a targeted end date of Feb. 9.
"I can see no better, other alternative," the judge said. "We're at a time of year where unless the going-out-of-business sales go forward now, there's hardly any sense in doing it."
Joseph McLeish of Gordon Brothers Retail Partners, which is working with KB Toys on the liquidation plan, told the court that the remaining shopping days between now and Christmas will be critical.
"We have a very finite period to liquidate this inventory. . . . The amount of business done between now and December 24th is absolutely critical to the success of the sale," McLeish said.
KB Toys, the nation's largest mall-based toy retailer, filed for Chapter 11 bankruptcy protection last week. The Chapter 11 filing allows the company to retain more control of its assets during the going-out-of-business sales than it would have under a typical Chapter 7 liquidation.
While approving the sales and accompanying advertising and signage plans, the judge denied authorization for KB Toys to hang a banner outside the exterior entrance of a mall store in San Diego, saying there was no evidence that that the banner could actually be seen from the road. Attorneys for the mall landlord and Gordon Brothers later agreed that the banner could be hung if they determined it would help draw traffic to the store.
The judge also approved KB Toys' request to pay store-closing bonuses of up to $1,500 to store managers and assistant managers to ensure that the liquidation sales proceed smoothly.
McLeish said that without the bonuses, the company likely would see a "mass exodus" of critical employees and a corresponding negative effect on store operations.
Joel Waite, an attorney for KB Toys, said last week that the company tried to find a way to plug a looming liquidity problem, but that the credit crisis and broad decline in consumer spending had a devastating effect on the company.
The company's seven-member committee of unsecured creditors is led by Hong Kong-based toy manufacturer Li & Fung, which is owed about $27.2 million, and El Segundo, Calif.-based Mattel Toys, with claims totaling $1.3 million.
Attorneys for the newly formed committee filed an initial motion challenging the Chapter 11 filing and the liquidation sales, but they later withdrew a motion to convert the case to Chapter 7. Waite said after Thursday's hearing that the concerns of the creditors committee had been resolved.
KB Toys, which emerged from an initial bankruptcy filing in 2005 as a subsidiary of investment firm Prentice Capital Management, has about $480 million in annual sales and roughly 10,800 employees, more than half of whom are temporary seasonal workers.
Clarification: An Associated Press story about the liquidation sale at KB Toys in yesterday's Business section contained incorrect information about one of the store's creditors. Li & Fung Ltd. is owed about $5 million.