Zale Corp., the nation's largest retail jeweler, became the first major casualty of an unhappy holiday shopping season as it announced yesterday that it would close about 400 of its 2,000 stores and freeze payments on its debts.
The highly leveraged Dallas-based company operates about 20 stores in the Baltimore area, trading under the names Zale's, Gordon's and Bailey, Banks & Biddle. A spokeswoman for the company, which has $1.2 billion in annual sales and debts totaling about $850 million, said last night that she could not say which stores would be closed.
Zale said that it has been forced to restructure its operations "in the wake of one of the worst retailing years in recent history" -- one that has had an especially heavy impact on the jewelry business. Besides the store closings, Zale said it would reduce the size of its headquarters operation.
To finance the restructuring, the company announced a "moratorium" on its repayment of debts to banks and vendors. It also said it would not pay $52 million in interest on bonds due Thursday.
The move is a last-ditch effort by Zale to stay out of Chapter 11, but its success could hinge on a decision by Barre & Co., a Dallas-based bond broker and dealer, whether to carry out its stated intention to force the company into involuntary bankruptcy if the bond payment is not made.
Jeff Middleswart, a bond analyst for Barre, said yesterday that his company had not seen details of Zale's restructuring plan. He said Barre would announce whether it will challenge the plan in court in the next few days.
He indicated, however, that it was by no means certain that Barre would carry out its threat. "There's certainly a lot up in the air when we make that decision," he said, adding that he expects Zale to offer bondholders a swap of equity in return for lower interest payments on its bonds.
He added that Barre would insist bondholders come out with a lot more than Austria's Swarovski family, which now controls Zale jointly with Peoples Jewellers Ltd. of Toronto.
Any one of Zale's creditors could petition to force the retailer into involuntary bankruptcy, but it is by no means certain they would fare better than they would in a negotiated settlement. Peoples Chief Executive Irving R. Gerstein said in a statement that creditors would accept a "realistic and doable" plan.
In an earlier statement, Zale had pinned its hopes on strong Christmas sales to generate cash to cover its interest payments, but Santa apparently was not good to the company. Mr. Middleswart said "the indications I have are that sales for the whole [final] quarter will be down 10 to 12 percent," from approximately $540 million to about $475 million.
The 67-year-old Zale firm has lost much of its glitter since operational control was seized in 1986 by Peoples in a $650 million deal arranged by "junk bond" king Michael Milken.
After Mr. Gerstein and the Swarovskis seized control of Zale, the Dallas company took on additional debt to acquire Gordon's Jewelry Corp., then the nation's second-largest chain, in 1989. The rapid expansion left Zale "overstored," said Mr. Middleswart, often with more than one store in the same mall.
He said the most likely stores to be closed are Zale's or Gordon's stores that trade under the same roof. Bailey, Banks & Biddle stores cater to a more upscale clientele and might be able to coexist with the other Zale subsidiaries, he said.
If Mr. Middleswart is correct, the Baltimore-area stores most at risk would be the Zale's and Gordon's stores at the Hunt Valley, Security Square and White Marsh malls.
Zale Corp. stores in Baltimore area
An asterisk (*) marks stores that share a mall with another Zale Corp. outlet.
Zale's
Annapolis Mall
Columbia Mall*
Glen Burnie Mall
Hunt Valley Mall*
Marley Station
Owings Mills Town Center*
Security Square Mall
Towson Town Center*
White Marsh Mall*
Gordon's
Eastpoint Mall
Golden Ring Mall
Hunt Valley Mall*
Reisterstown Road Plaza
Security Square Mall*
White Marsh Mall*
Bailey, Banks & Biddle
Columbia Mall*
7900 Ritchie Highway
Owings Mills Town Center
Towson Town Center*
XTC White Marsh Mall*