Ernst Home Centers, the century-old home improvement chain based in Seattle, will close all of its stores and go out of business, the company announced Tuesday.
Directors of Ernst, which currently operates eight stores in Utah and 53 throughout six western states, have authorized management to liquidate all of the company's assets, listed in its bankruptcy filing at $252.2 million against liabilities of $257.6 million.The liquidation is subject to approval of the bankruptcy court.
Ernst filed for Chapter 11 bankruptcy protection against creditors on July 12 and closed more than two dozen stores in what was then an 86-store, nine-state region. It had earlier closed its stores in Ogden, Layton and Sandy.
Last summer the company said it hoped the Chapter 11 filing would allow time for a restructuring that would bring the 103-year-old chain back to profitability. Tuesday's decision to liquidate means that won't happen.
"This decision was reached following a determination by the board of directors that an orderly sale of its assets is in the best interest of the company's estate and will maximize values," Ernst said Tuesday in a release.
Ernst now operates three stores in Salt Lake County - in West Valley City, at Fort Union and the Brickyard Plaza - and one each in Bountiful, American Fork, Spanish Fork, Orem and Logan.
Some 300 employees in Utah will lose their jobs as the liquidation continues through the first of the year. Throughout the corporation, about 2,000 people will be out of work because of the closure.
Managers at the Utah stores were reticent to talk about the liquidation decision for fear of reprisals from the Seattle headquarters. One veteran manager, however, agreed to talk to the Deseret News provided he was not identified. "I don't want to be fired," he said, acknowledging the irony.
The manager said all 40-plus employees at his store have been notified of the decision. "We held a meeting this (Tuesday) morning and gave them the word," the manager said. "Those that didn't come to the meeting were told as they came to work."
The manager said it was his understanding that it would be "business as usual" at the Ernst stores for the next two weeks, after which the stores would "go into a closeout mode."
The liquidation of merchandise, he said, is scheduled to continue until mid-January.
The manager said the company was doing well by its employees considering the situation. "They aren't (cheating) us . . . other than the fact that we are losing our jobs. They have some definite plans to take care of their employees. They've given us a severance package."
The manager said there was no doubt in his mind as to why Ernst was going under, and he was adamant that competition from such warehouse-type chains as Home Depot, Home Base and Eagle Hardware was not the problem - the reason cited by analysts.
"It's not competition. We are able to compete. The problem was that we expanded too fast and in too wide a range of markets. They put stores into the Tucson area that were a huge drain."
With capital costs of $5 million to open each new store, it doesn't take too many failures to drag down the whole corporation, the manager said.
Ernst opened its first store in downtown Seattle in 1893. It went public in 1994 in a bid to raise $45 million that it said would be used to open 55 "superstores." At the time, it set a goal to open 120 stores by this year. The company was then owned by NBL Life Assurance Corp., Newark, N.J. NBL now owns EHC, an acronym for Ernst holding company, which owns a majority of Ernst stock. The company's stock was earlier removed from the NASDAQ exchange.
In its most recent earnings report in September, Ernst reported it lost $51.6 million or $4.21 a share. For the first nine months of the year, Ernst had a loss of $120 million on sales of $343.3 million, compared with a loss of $2.2 million on sales of $419.3 million a year earlier.
Since going public, say analysts, Ernst has struggled with union problems and has been unsuccessful in gaining a share of the market dominated by the warehouse stores. More recently, Ernst tried to focus on home improvement and decor as well as the traditional hardware items and garden supplies. Its ads have touted more and better-informed staff in the stores. Lack of knowledge by the staff has long been a criticism of Ernst shoppers.
Last July, Ernst shareholders sued the company, accusing it of violating securities laws in its 1994 stock offering. The lawsuit, filed in federal court in Seattle, charged that the retailer misled investors about its ability to compete successfully as a hardware "super-store."
The suit is on behalf of investors who bought Ernst common stock from Sept. 27, 1994, through Jan. 26, 1996. It alleges Ernst presented a misleading picture of the company's financial position when the stock was offered. The initial public offering was priced at $16 per share and rose as high as $18. As the company's financial health worsened, its stock price steadily declined.
The Associated Press contributed to this report.