Bankrupt Frederick’s Seeking Suitor Again
Frederick’s of Hollywood, the famed purveyor of skimpy lingerie that has been operating under Chapter 11 bankruptcy protection since last July, is looking to be sold again, either in part or in its entirety, the company’s bankruptcy attorney Michael Tuchin told the Business Journal last week.
The move comes just a year after the company was bought by Wilshire Partners, a Newport Beach-based private investment company.
Frederick’s has retained Imperial Capital Bank to help it find a buyer.
The 55-year-old company, which had a revolving door of top-level executives before Linda LoRe stepped in as president and chief executive in 1999, recently filed for an extension of its deadline for submitting a reorganization plan to the Bankruptcy Court. The new deadline is April 30.
The company is seeking relief from a $55 million debt load that was taken on by its former owner, Chicago-based Knightsbridge Capital Corp., which sold Frederick’s to Wilshire Partners last year.
Frederick’s, which has nearly 200 stores in 40 states, has also put on hold plans to move its flagship Hollywood store down the street to a new retail complex called Hollywood Orangeland, at the corner of Hollywood Boulevard and Orange Street.
Instead, the company intends to stay at its 6608 Hollywood Blvd. building, where it has four more years on a five-year lease, said Jeff Greene, the retail estate investor who bought the 1934 Art Deco-style building last year for approximately $4 million.
Frederick’s has also obtained a $12 million replacement loan from Foothill Capital, a subsidiary of Wells Fargo & Co., which comes due in March 2002. It replaces a $12 million loan made by Ableco Finance LLC, an affiliate of Cerberus Capital Management LP and Gabriel Capital Group in New York. The previous loan was to come due in July, Tuchin said. Frederick’s President Linda LoRe said the privately held company is moving forward despite the Chapter 11 bankruptcy.
Internet sales for the fiscal year ended July 31 totaled $10 million and are projected to increase 50 percent this year, LoRe said. Catalog sales, which totaled $35 million in fiscal 2000, are projected to increase 15 percent this year despite two out of eight catalog mailings being canceled last summer due to the reorganization. Store sales were $100 million in fiscal 2000, and have been relatively flat so far this year.
Web strength
While Internet sales at Frederick’s have been brisk, LoRe said, the Web site will not be strong enough to pull the company out of bankruptcy. “Currently, if you look at (online sales), it is a small percentage of our total business,” LoRe said, explaining the company started selling lingerie over the Internet in 1997. “While it is not the driving force, it is a part of our distribution channels, but we can’t rely on that to get us out of Chapter 11.”
Retail analyst Todd Slater of Lazard Freres & Co. noted that stores like Frederick’s can be helped by the Internet.
“I think Frederick’s has a unique product that could be very well adapted to the Internet,” he said. “Most shoppers like the tactile feel of shopping and the social experience of shopping. But one advantage of the Internet is that it is quite anonymous.”
While the Internet is important, so are Frederick’s 198 stores. The company concedes that some of its stores have grown shabby and need to be upgraded.
“The stores are in need of care and need some TLC,” LoRe said.
Frederick’s sales have fallen over the last few years as Victoria’s Secret, with 878 lingerie stores, has made inroads in the industry.
