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Update on Fortunoff filing for bankruptcy
Fortunoff files bankruptcy, agrees to $100M sale to Lord & Taylor
Fortunoff, a shopping institution on Long Island for decades, said Monday it has filed for bankruptcy protection and agreed to be acquired for $100 million by the owners of Lord & Taylor, the second change in ownership for the Westbury-based home furnishing and jewelry chain in the past two years.
Retail industry sources said last week that Fortunoff, struggling for the past few years, was in talks to be acquired from the two investment firms that held a majority stake -- Trimaran Capital Partners and Kier Group of Manhattan, and the Fortunoff and Mayrock families, who hold a 25 percent ownership stake.
In an announcement early Monday morning, Fortunoff said it has voluntarily filed for Chapter 11 bankruptcy protection and that it will be acquired by NRDC Equity Partners, the owner of the venerable Lord & Taylor department store. Richard Baker, chairman of Lord & Taylor and chief executive officer of NRDC, said in a statement that NRDC plans to invest $100 million in the Fortunoff business "with investments being made in both existing and additional stores."
Retail industry sources said NRDC will pay $100 million for Fortunoff, a company with sales of about $450 million.
In an interview, Baker said NRDC wants to make Fortunoff into "a national chain," possibly with stores across the country. He did not say how many. Baker said NRDC will also renovate existing Fortunoff stores.
"We believe Fortunoff has the opportunity to be a national chain," Baker said. Baker said Fortunoff's sales could double in years to come.
He said Fortunoff jewelry and home furnishings will one day be sold in all 47 Lord & Taylor stores. Baker said that while he thinks Fortunoff is already an upscale retailer store, he wants to make it "a bit more" upscale.
Howard Davidowitz, chairman of Howard Davidowitz & Associates in Manhattan, a national retail consulting firm, said several factors had led to Fortunuff's decline in recent years, including a failure to expand and competition from outlets like Bed Bath & Beyond, and even Wal-Mart, which sells jewelry.
"They were getting squeezed" by competitors, Davidowitz said. "You've got to grow in retailing because you've always got killer competition."
Davidowitz said it remains to be seen what NRDC will do for Fortunoff. But, he said, he can see reductions ahead. "There has to be layoffs and cutbacks," Davidowitz said. "I think the whole business has to be looked at. They might even have to close stores."
Another retail source, who asked to remain anonymous because he has close ties to Fortunoff, said "Things changed when Alan died," referring to Alan Fortunoff, the son of founder Max Fortunoff, who ran the company for decades. Alan Fortunoff died in 2000.
The source said that while the current generation of Fortunoffs and Mayrocks, while competent and bright, lacked Alan Fortunoff's touch, which had been considered expert in the industry.
Fortunoff said its statement that Lord & Taylor has made available a $10 million letter of credit to help Fortunoff continue to purchase inventory. Additionally, Fortunoff said, some of its lenders have agreed to provide the company with debtor-in-possession financing that will be used to run the business during the bankruptcy process.
Under bankruptcy provisions, other bidders could make competing offers for Fortunoff, the announcement said. Retail experts, however, said, the chance of other bidders emerging is small.
NRDC said the deal is expected to close in early March.
Fortunoff said that all of its stores and its corporate headquarters will remain open during the bankruptcy process.
Arnold Orlick, Fortunoff's chief executive, said in a statement that "it has been a difficult retail environment and capital constraints have limited expansion opportunities. This transaction will help realign our capital structure and provide an avenue for future growth.
In 2005, the Fortunoff family, which has operated the business since it opened on Livonia Avenue in Brooklyn in 1922, sold a 75 percent stake in the company to the Trimaran and Kier groups.
In a statement Monday morning, the Fortunoff and Mayrock families said, "Given the challenges that Fortunoff faced in the current economic environment, we are happy that this opportunity for an affiliation with NRDC and Lord & Taylor emerged. We look forward to seeing Fortunoff move quickly through the Chapter 11 process and are very hopeful it will thrive under this new ownership. And of course we are delighted that the stores will remain open to serve the public and Fortunoff's employees will continue in their jobs. Since 1922, when Max and Clara Fortunoff founded the company, it has been known for its quality, selection, service and value. These core values continue to guide it today and we're happy that NRDC intends to marry the storied Fortunoff brand with Lord & Taylor."
Fortunoff now has 20 locations, including its Westbury store and three other "full-line" stores, two jewelry and gift stores and 14 indoor-outdoor furniture locations in New York, New Jersey, Connecticut and Pennsylvania.
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