Crown to depart bankruptcy with spirits up, prices down; Discounter's plan to reorganize confirmed by court; Bookstores


Discount bookseller Crown Books Corp. will emerge from bankruptcy within a month poised to take on its mega-bookstore rivals by undercutting their prices, the Landover-based retailer said yesterday.

Crown is also searching for a permanent chief executive officer to replace Anna Currence, a turnaround specialist who successfully steered the company through a 14-month Chapter 11 reorganization. Steve Panagos, a partner with New York-based consulting firm Zolfo Cooper, stepped in yesterday as interim chief executive officer.

Crown made the announcements after U.S. Bankruptcy Court in Delaware confirmed the chain's reorganization plan, which the company filed in early July.

Under the plan -- to take effect in about three weeks -- a leaner, nearly debt-free company will issue new stock to unsecured creditors based on their claims. Shenkman Capital Management Inc., a New York money management firm that had purchased a third of Crown's claims in the spring, will own about a third of the company.

Shortly afterward, Crown, formerly a subsidiary of Dart Group Corp., plans to get its stock, now traded over-the-counter, listed on one of the stock exchanges.

Panagos, whose firm has been working on Crown's reorganization for the past year, credited Currence with reviving the chain, a 1980s success story overcome this decade by management turmoil and competition from huge booksellers.

Under the leadership of the former Barnes & Noble executive, the chain closed 87 unprofitable stores, cut operating expenses by $25 million, improved distribution, rebuilt inventory and began creating a new store format.

Once a new chief executive comes in, Crown will consider opening new stores, making acquisitions, remodeling existing stores and launching an e-commerce site, Panagos said.

"Shenkman Capital and management here have no desire to stay as a 92-store chain and would like to grow as quickly as possible, but to do it the smart way, so it's controlled growth," Panagos said yesterday. Stores are located in five metropolitan areas, including Baltimore-Washington.

While mega-store chains Barnes & Noble Inc. and Borders Group Inc. have captured more than one-fourth of the market by luring shoppers with huge selections, in-store cafes and entertainment, Crown expects to compete on price.

"When you go into a Crown store, you have the luxury of walking out with the cheapest product in your hand, and you don't have to wait for the mailman to come," said Panagos, who said Crown offers discounts of 40 percent to 45 percent on New York Times bestsellers and 10 percent on magazines and newspapers. "Crown is positioned very, very well to compete effectively against the big-box players, and even against the e-commerce players because prices are so cheap. The cost structure and overhead structure is lean and mean, that's why."

Panagos, whose firm has also helped retailers such as Federated Department Stores Inc. and Wards out of bankruptcy, said Crown found that it needed to go through only one round of store closings. After filing for bankruptcy, getting new financing and rebuilding inventory, sales at remaining stores rebounded, he said. The chain has annual sales of $200 million.

"That demonstrated to us that the customer who had come into Crown and was disappointed [by low inventory] and went elsewhere, once they realized Crown had the products, they came back to Crown," he said. "There is a viable place in the market for a discount book seller."

Still, with Barnes & Noble and Borders on the scene, "It'll be difficult for anyone else to compete," said Jason T. Klein, an analyst with Blackford Securities. "They're going to have to make the stores more appealing and have to offer the books at competitive prices."

During the 1980s, Crown grew into the first national discount bookstore chain, opening stores in neighborhood strip shopping centers and offering a wider selection and a more convenient alternative to mall bookstores. At its peak, the chain had 250 stores. But, in addition to the advent of the book superstores, Crown found itself caught in a feud among Dart Group founding family members. The turmoil intensified after Dart's founder, Herbert H. Haft, fired his son, Robert Haft, as president of Crown in 1993.

In 1998, Dart Group was acquired by Richfood Holdings Inc., a Richmond, Va.-based grocery wholesaler, which itself has been acquired by Supervalu Inc., a Minneapolis-based food wholesaler and retailer.

As a new, independent company, Crown Books will be debt-free except for a $35 million working capital line of credit from Paragon Capital LLC.

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