Why Retailers Don't Recover from Bankruptcy: Echoes

On Feb. 27, about 14 months after it filed for bankruptcy, the Great Atlantic & Pacific Tea Co. won court approval to resume normal operations as a privately held company. If history is a useful guide, the firm that was the world’s largest retailer for much of the 20th century will have a hard time regaining its retail luster.

A&P, which at its peak owned almost 16,000 grocery stores in the U.S. and Canada, is the latest in a very long line of retailers that have turned to the bankruptcy courts to fix their problems.

A few have been successful. United Cigar Stores, one of the largest chains of the early 20th century, skated through bankruptcy court in 1932 and emerged to sell cigars for decades more. After a trip through bankruptcy from 1990 to 1992, Federated Department Stores Inc. took over R.H. Macy & Co., itself a product of bankruptcy reorganization. The resulting company, now known as Macy’s Inc., is the nation’s largest department-store operator.

But for every such success, there have been hundreds of failures. Bruno’s, an Alabama company dating to the early days of supermarkets in the 1930s, went bankrupt in 1998, then emerged to go bankrupt once more in 2009. Penn Traffic Co., a New York grocery chain whose origins dated to the 1850s, liked bankruptcy court so much that it made three visits before closing its doors for good in 2009.

Montgomery Ward, founded as a mail-order house in 1872, filed for bankruptcy in 1997 but couldn’t make a go of it even after shedding its debts; it filed again in 2000 and closed up shop. Spiegel, Ward’s mail-order competitor for almost a century, emerged from bankruptcy reorganization in 2003 with a new name, Eddie Bauer Holdings, but found itself bust again in 2009.

Why has it proven so difficult for venerable retailers to reorganize successfully in bankruptcy? One reason, shared in common with the thousands of younger retailers that go bust each year, is that the actions that companies typically take in hopes of staving off bankruptcy -- cutting sales staff, deferring store maintenance, reducing inventory, removing light bulbs to cut electricity bills -- tend to drive away shoppers and thus destroy the value of the very brand name the company is trying to save.

Old-line retailers, though, face another obstacle to reviving their businesses: In retailing, venerable usually isn’t good.

Once, old retail names carried reputations for fair dealing, good customer service and financial strength -- think Wanamaker’s or Filene’s. These days, though, shoppers are more likely to associate historic with stodgy. Even if a store has changed formats, labels and product lines, customers associate it with the way it used to be. The store’s name, and the brands that go with it, lose value, or even take on negative value. Just ask the folks at Sears.

The new, post-bankruptcy A&P faces many of the same obstacles. Once, its brands -- Jane Parker cakes and dinner rolls, Ann Page canned goods, White House condensed milk -- were among the most powerful in retailing, and customers from Maine to California trusted the A&P name. Now the brands are gone, and if they think of A&P at all, shoppers remember it as the old-fashioned store where their grandmother used to shop. In retailing, a venerable name is a weak foundation on which to rebuild a business.

(Marc Levinson's most recent book is "The Great A&P and the Struggle for Small Business in America." The opinions expressed are his own.)

To read more from Echoes, Bloomberg View's economic history blog, click here.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

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    Marc Levinson

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