Hancock Fabrics Inc., one of the largest fabric sellers in the United States, sought protection from creditors for the second time in less than a decade, saying it will use the bankruptcy to explore a sale, close stores, and ramp up its online presence.
The retailer, which has more than 250 locations in 37 states, said it seeks to close 70 stores immediately. It has an agreement with a liquidator, Great American Group, to expedite those closings, according to court papers filed Tuesday. Great American will also serve as a backup bidder for its assets while Hancock continues to seek higher and better offers, and potentially sell itself whole as an ongoing business.
“We value our relationships with our vendors and appreciate their support throughout this process,” Chief Executive Officer Steve Morgan said in a statement Tuesday. He said the company, founded in 1957, will continue operating during the reorganization.
The company is seeking court permission to take out an operating loan of up to $100 million from Wells Fargo, which would serve as an agent to lenders. The loan will help stabilize the business and keep inventory fresh to appeal to potential buyers, according to court papers.
Hancock had filed for bankruptcy protection in 2007, emerging the following year with a business it said benefited from the reorganization. Last year, the Baldwyn, Mississippi- based company said “intense” competition threatened its ability to continue as a going concern. Hancock’s rivals include Wal- Mart Stores and Michaels Stores Inc., as well as online merchants.
Hancock had 2014 sales of more than $283 million, making it one of the biggest fabric sellers in the United States, according to its filings. It had a loss of $3.2 million that year, and is facing “a very challenging retail environment as well as significantly increased costs” related to pension obligations for retirees, Senior Vice President Dennis Lyons said in a court filing.
In 2014, Hancock’s pension and retirement plan costs increased by $4 million, and the amount by which its plan was underfunded grew to $43.8 million from $28.4 million, Hancock said in court papers.
In a petition filed Tuesday in Wilmington, Del. bankruptcy court, Hancock listed debt of $182 million and assets of $151.4 million.
March 9 has been proposed as a deadline for bidding on the assets, with an auction to be held March 11.