OTASCO Inc.'s abrupt closing of its 170 stores Monday may have harmed prospects for raising capital, but management said it had little choice.
Jerry Goodman, chairman and chief executive of the Tulsa-based retailer, said trade creditors have been supportive of OTASCO, which initiated bankruptcy reorganization proceedings simultaneously with the store closings. But he said the company "did not receive additional capital support we needed from our lenders, which forced us into this situation."
Inventory financing for retailers is among the least risky of business loans because of the liquidity and quick turnover of the collateral the inventory securing it. But OTASCO spokesman Steve Wiley said a group of six banks that had provided inventory financing declined to continue to do so.
He said AmeriTrust Co. in Cleveland, Ohio, OTASCO's largest creditor at $86 million, was the lead lender in the group. Wiley said management tried to sell the company but, "Everybody wanted something for nothing."
Goodman said a much-smaller OTASCO hopes to reopen for business in the spring. Wiley said management was concerned about closing the stores during the interim.
"It's not really fair to go into Christmas without merchandise," he said. "We're better off reintroducing OTASCO, if you will.
"One of the last things you want to do is disappoint the consumer."
Wiley also said the lack of buyers willing to pay a price acceptable to management suggested that the OTASCO franchise value would not fall substantially more by closing the stores.
Goodman said OTASCO's falling sales and profits were due largely to poorly performing stores in depressed oil and energy regions, which Wiley estimated account for 85 percent of all stores. The company said collection problems with customers who purchased goods on credit also contributed to OTASCO's financial difficulties.
Goodman has been an OTASCO employee since 1970 and president and chief executive since 1983.
Wiley said the repositioning of OTASCO stores that has been completed for some locations has succeeded and needs to be used for other stores that would remain. When OTASCO began closing 94 stores two years ago, Goodman said discount general merchandisers such as Wal-Mart had taken much of OTASCO's traditional market.
The firm said then that it would specialize on automotive products, home appliances and electronics.
Wiley said some of the repositioned stores that performed the best were situated in strip shopping centers with a Wal-Mart store.