National Stores Files Chapter 11, Plans to Close 22% Of its Stores

Discount retailer National Stores, which owns the Fallas, Factory 2-U, Weiner’s, Conway and Anna’s Linens brands, joined the growing list of Chapter 11 filings on Monday, the company reported, blaming a 2017 data breach, the 2014 purchase of Conway, weather events and a brutal environment.

At the same time, National will close 74 of its 344 U.S. stores starting this week, and has secured $108 million in debtor-in-possession financing from existing lenders. The news follows on the heels of Brookstone, which filed for Chapter 11 protection last week.

“National Stores, historically a profitable company, is committed to improving its financial health and returning to profitability,” said CEO Michael Fallas in a release. “Our goal is to emerge a reorganized Company poised to compete in an evolving industry so that we can continue to serve the communities where we are rooted.”

The 2017 data breach, disclosed in January, was a POS malware attack that potentially hit 270 National Stores locations, 90 of them in California, affecting up to 550,000 customer accounts. In addition to that and the strain on liquidity from the Conway acquisition, the company also cited extreme weather events such as last year’s Hurricane Maria which damaged stores and led to revenue loss.

National Stores, founded in 1962 by Fallas’s father, expanded through acquisitions since 2000, some through bankruptcy auctions, according to the Wall Street Journal. It acquired 31 Weiner’s stores in 2001; 100 Factory 2-U stores in 2004; 78 Conway locations in 2014; and 40 Anna’s Linens locations in 2015. Located in under-served communities, many of its goods sell for $5 or less.

The company has $110.4 million in secured debt and owes $220 million to creditors, in addition to $42.8 million in unsecured loans from Fallas, according to court filings, the WSJ reported.

“Through this process we intend to secure our future for our valued employees, customers and suppliers,” Fallas said in the release. “Our employees can be assured that they will continue to receive their salaries and benefits, customers can continue to purchase the items they want at the exceptional prices they rely on, all of our stores will continue to honor gift cards, and we will maintain gift card sales at our remaining stores.”

Other notable Chapter 11 filings among the dozens in the past two years include Gymboree, Toys R Us, BCBG Max Azria Group, rue21 and True Religion. All of those but Toys R Us are still going concerns as they work through their debt and liquidity issues.

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