Crown Books exits bankruptcy; Firm will be relying on Web, cheap prices to make it profitable; 5 million shares issued


Crown Books Corp. has emerged from 16 months in Chapter 11 bankruptcy protection with a reorganization plan that includes discounted books and a "significant" Internet presence, but analysts predict a tough road ahead for the retailer.

Steven Panagos, the Landover company's interim chief executive officer and a partner in the New York crisis management firm Zolfo Cooper LLC, said yesterday the reorganization plan cancels all of the company's old common stock.

The company, which has 92 stores, will emerge debt-free by distributing 5 million shares of its new stock to its creditors. Each new share was valued at $4.61.

Shenkman Capital Management Inc. will be the largest stockholder with a third of the stock, approximately 1.7 million shares.

Panagos said the reorganized company will focus on forming an Internet strategy.

"We're in the process of figuring out how to do e-commerce in a way that is profitable and distinguishes us from the other e-commerce players," he said.

But some question the strategy since profitability continues to elude the top Internet bookseller, Inc. Amazon is five times bigger than No. 2 Inc., according to Daniel Ries, vice president of the New York investment bank C. E. Unterberg, Towbin.

"They are entering a tough space," Ries said. "Anyone entering the market is going to have a tough time competing."

Ries said the big players are still not making money on their Internet ventures. To gain customers, he said Crown would have to price lower than the competition, which could make for a difficult cost structure.

"[Crown] has a good brand name, that should go a way for them," said Patrick Diedrickson, a securities analyst with Olde Discount Corp. "But it's going to be difficult for anyone to make money in e-commerce selling books at this point."

But it is the Crown brand name and its discount prices that Panagos hopes will draw more business. "You can buy a book for less at Crown than you can at Barnes & Noble and Borders."

Crown discounts hardcover best sellers by 40 percent, all hardcovers by 15 percent and paperbacks, newspapers and magazines by 10 percent. "Today nobody is competing with Crown in price," Panagos said. "Barnes & Noble and Borders are selling atmosphere and cappucino. We sell cheap books."

But Crown's discount focus may not be enough, according to Charles Popovich, an associate professor of marketing at Robert Morris College in Pittsburgh.

"A lot of people don't do comparison price shopping on books," he said. "If it was a Vegas bet, I wouldn't put my money on them."

Panagos said the company also will be "freshening" the inventory in its stores and reorganizing store presentation to bring new products to the front of the store.

He said the company for now has scrapped plans for a major redesigning announced by Anna Currence, the former Barnes & Noble executive who headed Crown during its reorganization.

Crown will "be looking at opening new stores and remodeling existing stores" but not in the near future, he said. Crown's 92 outlets are in Baltimore-Washington, Chicago and the West Coast.

Crown, which filed for bankruptcy protection in July 1998, closed 82 of its 174 stores -- including five in Maryland -- as part of the proceedings. At its peak, it had 250 stores nationwide.

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