Goodbye to Haggen grocery stores
Wikipedia states that strategic bankruptcy occurs when an otherwise solvent company makes use of the bankruptcy laws for a specific business purpose. An example of this was in 2002 when
Kmart filed a Chapter 11 bankruptcy. Kmart had a severe cash flow problem because it was locked into long-term leases at premium rates with respect to various unprofitable stores. While in Chapter 11 reorganization, Kmart was able to renegotiate or rescind those particular leases.
In a similar strategic move, Haggen filed for Chapter 11 bankruptcy protection on Sept. 8. Although the filing may be a good financial move for the company, it is having a devastating impact on our local economy.
Haggen is a Pacific Northwest grocery store chain that spent more than $1.4 billion to acquire 146 stores from Albertsons, Vons, Pavilions and Safeway in December 2014 after the Federal Trade Commission forced them to be sold as part of a merger. Haggen expanded from 18 stores and 16 pharmacies to 164 stores and 106 pharmacies across Washington, Oregon, California, Nevada and Arizona in an attempt to become a regional player in the grocery store game.
From the outset of the purchase, Haggen was plagued with pricing problems. Experts have stated that the chain failed to do its own market research and instead relied on Albertsons and Safeway as a guide to how to price their products. Shoppers complained that Haggen’s stores charged even higher prices for the same products than the supermarkets they replaced. In addition, a former Haggen employee sued Haggen alleging that she was discriminated against when she reported a mismatch between the prices on the shelf and at the cash registers.
Within seven months of the purchase, Haggen started laying off employees and reducing hours. Now they have petitioned the bankruptcy court to close all of their stores in California as part of a larger exit of its Pacific Southwest holdings, including Arizona and Nevada. They have stated that these 100 plus stores are costing the company $400,000 per day in negative cash flow. Their court documents state that the closure of the 100 stores would mean that the company will save $57.4 million for the rest of the fiscal year and would generate an additional $125.6 million in gross proceeds by liquidating the stores that are closing.
Haggen has filed a strategic bankruptcy to stop their financial losses, but at what cost? Haggen is not selling their stores to a new owner. They have announced that they are liquidating all of the merchandise and furnishings.
Union leaders estimate that about 8,000 workers will be affected in California alone. The United Food and Commercial Workers union has filed grievances with Haggen, Vons and Albertsons, alleging that recent layoffs and reduced hours violated a collective bargaining agreement. However, even if they are successful with this action, the jobs are lost and are not coming back.
In addition to the loss of jobs that this strategic bankruptcy has caused, there are over 100 landlords out there that have just lost their biggest shopping center anchor tenant and are facing losses of rent for what could be a very long time. This not only hurts the landlords, but also all of the other tenants in those shopping centers that will have a lot less foot traffic now with the supermarket closed.
In addition, there are hundreds of vendors who have sold food items to Haggen who were not paid for the merchandise they delivered. The food vendors that deliver goods to the grocery store chain are almost always unsecured creditors and quite often small, family-run businesses such as local produce growers and makers of regional specialty items. These vendors will very likely not get paid for anything they delivered to Haggen because they are unsecured creditors of the bankruptcy and there will be no funds to pay them once all of the secured creditors are dealt with.
While a strategic bankruptcy may be the best course of action for the failing company, it is not best for the community and will result in vast financial devastation for all who were unlucky enough to have involvement with that business.
This is a shame.
• Lisa Spiwak is a partner with the firm Spiwak & Iezza in Thousand Oaks. Reach her at LSpiwak@SpiwakandIezza.com.