Pay 'N Pak Stores Inc. plans to start a 12-week going out of business sale on July 1, in a startling announcement that the company will not survive an attempt to reorganize.
The Kent-based home-improvement chain said yesterday it intends to close its remaining 68 stores, a move that will throw about 2,200 employees in Washington and 10 other states out of work.
About 500 of the employees are in the Puget Sound area, 1,300 of them in Washington state. In February, the chain closed nine stores and laid off 235 workers as it struggled to survive.
In the court papers, Pay 'N Pak says the liquidation could raise $73 million after it pays legal and administrative expenses.
Pay 'N Pak asked a U.S. Bankruptcy Court judge late yesterday for permission to liquidate its stores, and an emergency hearing is scheduled tomorrow. Pay 'N Pak and its parent company, PNP Holdings Corp., filed for Chapter 11 bankruptcy protection in September.
In papers filed at the Bankruptcy Court yesterday, the company said its financial situation had improved under Chapter 11. But recent events such as increased competition and a lack of credit from its suppliers gave the company little option but to close its doors, the documents said.
Under Chapter 11, a company is protected from creditors while it formulates a plan to reorganize. Pay 'N Pak had hoped to file a reorganization plan this month.
Pay 'N Pak was saddled with debt after a management buyout in 1987 saved the company from corporate raider Paul Bilzerian, who tried an apparent hostile takeover. The company has lost money each year since the buyout. Even under court protection, the recession and intense competition from other home-improvement chains, such as Ernst, Eagle Hardware & Garden, and HomeBase Inc., were enough to sink Pay 'N Pak for good.
There is an irony in the intense competition from Eagle. David Heerensperger, Eagle's chief executive and chairman, was the former chief executive at Pay 'N Pak until he was forced out as a result of the hostile takeover. He left Pay 'N Pak before it filed for Chapter 11, and founded Eagle in 1990.
Now as Pay 'N Pak fails, Eagle nears a sale of stock to the public to expand its stores in Seattle, Bellevue, Federal Way and other Northwest cities.
Pay 'N Pak joins several other Seattle retail institutions that have failed or been taken over in the past year. Frederick & Nelson, in liquidation itself since February, shut down last month. Pay'n Save, also hurt by competition and debt, was acquired earlier this month.
Pay 'N Pak apparently did not tell store employees about its plans late yesterday. Managers at stores on Aurora Avenue North and in Bothell had heard nothing about the closures. A manager at the Puyallup store says he was told to expect news about the company's future last evening but had not received the information when he talked to a reporter.
"I'd be very surprised if (the liquidation) was company-wide; I wasn't expecting that," says James Gassman, the Puyallup manager. "It's going to be a shock to the whole Puget Sound area."
In court papers, the company says it will hold job fairs and placement workshops for its employees.
Not only will people lose their jobs, but about $160 million in debt may never be repaid Pay 'N Pack. Secured creditors, such as banks, will be paid off with proceeds from the sale of real estate and inventory. But there will be little, if any, money left for unsecured creditors, says Gayle Bush, a lawyer for GTE Products Corp., a creditor.
Bush says Pay 'N Pak owes his client about $2 million for light bulbs and lighting services.
The liquidation is a surprise.
Recently, the company got the go-ahead from the Bankruptcy Court to borrow up to $85 million. And Pay 'N Pak had just opened eight remodeled stores under a new merchandising plan.
The stores, from Everett to Olympia, were renovated in the same format as the company's new stores in Puyallup and Walla Walla. The format puts more emphasis on kitchen renovations and home lighting, moving the store from a more traditional hardware format to a do-it-yourself center.