Shopko owner reportedly preparing for bankruptcy

Wednesday, December 12, 2018

Efforts by Shopko Stores to find a buyer have stalled and the Midwestern retailer is making preparations for a bankruptcy filing, according to those with knowledge of the matter.

The news reverberated throughout the Cherokee area last week as word that its Shopko Hometown Store, barely into its third year in a newly constructed facility on U.S. Highway 59 North, would be closing, along with two other Iowa stores in Webster City and Eldora, and 39 stores across the Midwest.

Officials with Shopko Stores Operating Company in Green Bay, Wisconsin have announced that three Shopko Hometown stores in Iowa will be closing their doors in February. Company officials said the closing is based on long-term profitability, sales trends and potential growth not coming in.

The Cherokee Shopko Hometown opened in 2015 in a $3 million 25,000 square foot store. It employs about 20 full and part-time staffers. In 2014, developers were close to signing a lease or buying the long vacant Harley Davidson facility on U.S. Highway 59 North, but for some unannounced reason(s) that deal fell through and Shopko purchased nearby highway frontage property and built their own, free-standing facility.

Shopko earlier this year sold some pharmacy customer lists for almost $6 million as part of an effort to mitigate costs. Privately owned since 2005, the company reported revenue of $652 million for the quarter ended Aug. 4, down from $679 million in the year-ago quarter. The company is also saddled with debt, and Spirit Realty Capital, which now owns much of its real estate, in January provided a $35 million term loan due 2020 with a 12% interest rate sharing collateral with its $784 million asset-backed lending facility.

“Shopko used to be a great regional company," said one consultant. "I doubt the internet (online buying) had much to do with it. It’s tough to be a small guy in the world of 4,500 Walmart's and 15,000 Dollar General stores."

The general merchandise chain, owned by Sun Capital Partners Inc., could still reach agreement on an out-of-court restructuring, but that scenario looks increasingly unlikely. The situation remains fluid, with no guarantee that a court filing will happen at all, or that it will include a pre-negotiated plan to save the company.

Representatives for Shopko, based in Green Bay, Wisconsin, and Sun Capital, based in Boca Raton, Florida, declined to comment.

It would be the second trip to bankruptcy court in as many years for a Sun-owned retailer. Gordmans Stores Inc., the Omaha-based department-store chain, went bankrupt in March 2017 with a plan to liquidate, a casualty of slowing mall traffic and online rivals.

Pharmacist James Ruben opened the first Shopko store in 1962, about the same time that Walmart Inc. and Target Corp. went into business, and Shopko went public in 1991.

Sun Capital bought the company in 2005 for about $1.1 billion. The following year, real estate investment trust Spirit Finance Corp. bought the retailer’s real estate in an $815 million sale-leaseback transaction.

In 2012, ShopKo acquired Pamida’s 193 stores for an undisclosed sum to expand its presence in rural and other less-populated markets, and rebranded those stores as part of its smaller-format ShopKo Hometown division. Part of the chain’s success was due to its presence in those markets that larger competitors overlooked.

Shopko reportedly is working with restructuring lawyers as well as an investment bank and consulting firm.

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