Published on: September 9, 2015Haggen has filed for Chapter 11 bankruptcy protection, hoping to use it "to reorganize around its core profitable stores" and "market for sale some locations in the five states it operates and to explore market interest for various store locations. Discussions are underway with interested parties to sell many of the company’s remaining assets," the company said.
“After careful consideration of all alternatives, the company concluded that a reorganization through the Chapter 11 process is the best way for Haggen to preserve value for all stakeholders,” Haggen CEO John Clougher said in a prepared statement. “The action we are taking today will allow us to continue to serve our customers and communities while providing Haggen with a process to re-align our operations to be positioned for the future.”
Sources tell MNB that Clougher's co-CEO, Bill Shaner - who was brought in to run the company's Pacific Southwest division, in California, Nevada and Arizona - no longer is with the company. Haggen would not confirm these reports and did not respond to repeated questions about Shaner's departure.
UPDATE, 11:20 AM EDT: Haggen just released the following statement:
"Bill Shaner is no longer with Haggen. We greatly appreciate his contribution to the company. John Clougher will be leading the company going forward."
The bankruptcy statement from Haggen says that the retailer "has received commitments for up to $215 million in debtor-in-possession (DIP) financing from its existing lenders to maintain operations and the flow of merchandise to its stores during the sale process," which it hopes will sufficiently address the out-of-stock and cash flow issues that have plagued it in recent weeks as its stores simply did not generate enough revenue.
The Haggen bankruptcy is just the latest twist and turn in a story that began with an 18-store company that had competitive issues in its home Pacific Northwest markets, and then, fueled by investment funding, decided that it made sense to acquire 146 stores that were available after the Albertsons acquisition of Safeway. Regulators pushed Haggen to convert the stores in short order, which meant that other than signage and relatively few merchandising adjustments, the conversions ended up being less consequential than necessary to create any sort of competitive advantage.
Haggen experienced a series of missteps since the acquisition. It had pricing issues at some of the new stores, was forced to reduce employee hours and even lay people off when sales did not meet expectations, then was forced to close 27 stores that were severely underperforming. Albertsons sued Haggen, accusing it of not paying for merchandise it got in the acquisition, and the Haggen sued Albertsons for more than $1 billion, accusing it of deliberating subverting its ability to be competitive in the newly acquired stores. And then, Haggen was hit by a lawsuit by a former employee who accused it of systematically overcharging customers and ignoring her warnings.
Just a week or so ago, suppliers were telling MNB that Haggen continued to suffer from severe sales problems, and was facing the possibility of a cash shortfall that could affect its ability to pay suppliers, and a likely bankruptcy. Haggen responded to those reports with a carefully parsed statement, saying that it was "in regular communication with its suppliers and we fully expect that they will be paid in full." Haggen did not address on-the-record the reports of bankruptcy concerns.
In its coverage, the Los Angeles Times reports that "Haggen, which expanded its workforce fivefold to 10,000 employees this year, did not specify how many employees would be affected by Chapter 11. The company said it was seeking court approval to 'continue employee wages and certain benefits'."
And the Oregonian reports that "5he bankruptcy filing lists Haggen's largest creditors, including wholesale distributor Unified Grocers (Haggen's biggest creditor, with a claim of $14.8 million), vendors like Coca-Cola and Frito Lay, and money transfer service MoneyGram. The final creditor listed is Albertsons, and the amount owed, for litigation, is listed as disputed and undetermined. The filing also shows that Haggen owes its own former chief executive Dale Henley nearly $4.9 million in deferred compensation."
- KC's View:
But, on the other hand, totally believable ... because this entire effort has been questionable from the very beginning, if only because it was hard to understand how a company that had trouble running 18 stores profitably would be able to handle more than 160.
Hubris is part of the problem, I'd guess. Not to mention a total disconnection from reality.
It makes me think of a business lesson that Michael Sansolo has written about here, from the movie World War Z, in which an Israeli official explains why his country has done a better job defending against zombie attacks than other nations. Israel, the official says, fights group-think by requiring dissent; if ten people are sitting around a table debating a policy decision, and nine of them agree, it is required that the tenth person present an alternative view.
At Haggen, it is like zombies were running the company. Nobody asked the tough questions ... or, at the very least, nobody listened to the hard answers.
Here's the one story I don't want to see in the next few weeks ... but that, I'd guess, is an almost certainty - that Haggen wants permission to pay millions of dollars in retention fees to executives with the company who have been at the helm through this debacle.
Last February, in (skeptically) assessing Haggen's chances, I wrote:
This strikes me as an enormous undertaking in which everything has to go right for it to work. They seem to have a plan, and they certainly have smart people at the helm ... but they're reinventing these stores in some pretty tough competitive markets, and will have to give consumers a great first impression of they are going to disrupt existing shopping patterns. Nimble is good. Being extraordinary is better ... and probably a requisite for success.
As it ends up, very little went right, the smart people weren't smart enough, and the company was neither nimble nor extraordinary.
As far as Bill Shaner's departure.... the question has to be asked, in view of the debacle that he helped to oversee, do they really appreciate his contribution to the company?
I don't mean to be harsh here ... but I have to wonder how long Clougher will be there ... because it is hard to imagine that anyone at the top there is inspiring a lot of confidence anywhere.