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Lechters files Chapter 11
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May 21, 2001: 12:41 p.m. ET
Housewares retailer seeks protection from debtors, secures $86M financing
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NEW YORK (CNNfn) - Home goods retailer Lechters Inc. filed for Chapter 11 bankruptcy protection Monday citing difficulty in obtaining financing for a previously announced restructuring plan.
The Harrison, N.J.-based chain, which sells diverse products from kitchen utensils to picture frames, said it had arranged $86 million in debtor-in-possession financing to pay vendors and provide employee benefits in addition to helping fund its plan to streamline into a kitchen wares-only format, a niche it hopes will return it to profitability.
The implementation of the financing agreement is subject to the bankruptcy court's approval.
All stores will remain open and function as normal, the company said. Lechters (LECH: Research, Estimates), which operates 325 stores in 36 states and the District of Columbia, had total assets of $129 million as of May 4 and owes $111 million to creditors.
"We are voluntarily taking this action because we believe the Chapter 11 process will provide us with the best opportunity to implement our strategic repositioning plan and return the company to profitability," CEO David Cully said. "We recognized some time ago that to compete in the existing retail environment it would be necessary to make changes in our business to better differentiate ourselves in the marketplace and provide consumers with more compelling reasons to shop our stores."
Facing stiff competition from bigger and more profitable competitors such as Bed Bath and Beyond (BBBY: up $0.25 to $30.34, Research, Estimates) and Linens N Things (LIN: up $0.60 to $30.55, Research, Estimates), Lechters announced a turnaround plan Feb. 9 based on the concept "Think Kitchen."
As part of the strategy, it is migrating its brand to focus more closely on the kitchen and is upgrading its merchandise assortment to offer higher quality products, with a good-better-best merchandising approach, the company said.
But concerns about the company's future operability prevented it from securing the needed financing, the company said, forcing it to file for Chapter 11.
When a company files for federal bankruptcy protection under Chapter 11, it is protected from creditors while it tries to reorganize its business and work out a plan to pay its debts.
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"Unfortunately, concerns about the company's financial position have precluded us from receiving the trade credit necessary to implement our strategy and, in turn, has impacted our liquidity," Cully said. "Under the court's protection, we intend to move forward aggressively with our plans, in order to capitalize on the significant opportunities for a kitchen-focused specialty retailer that knows and understands how contemporary America leads its life in and around the kitchen." 
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