Home decor retailer with Carmel store files for bankruptcy

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The gloomy state of brick-and-mortar retail has helped push another chain into bankruptcy, and this one is planning a speedy sale in order to dodge liquidation.

Z Gallerie LLC, the upscale retailer known for its eclectic home decor, filed for Chapter 11 bankruptcy in Delaware on Monday.

Los Angeles-based Z Gallerie has more than 1,000 employees, operates 76 stores and generated over $200 million in sales last year. It will close 17 underperforming stores, but plans to continue operating during bankruptcy and aims to emerge within 120 days as a result of a sale to a third party or a debt-for-equity swap.

The retailer did not identify which stores it intends to close. Z Gallerie operates one store in Indiana, at Clay Terrace in Carmel.

The company blames the filing on self-imposed problems—namely a failure to invest enough in e-commerce, the addition of a costly distribution center and an expansion that didn’t meet performance targets.The latest victim of the so-called retail apocalypse says trends in brick-and-mortar sales worsened the missteps that led Z Gallerie to bankruptcy, according to court papers. The filings emphasize a need for fast proceedings to avoid the fate of retailers who sought to reorganize but were forced to liquidate.

“Convincing third parties of the turnaround story in a short period of time –and convincing them to work with the debtors towards the value maximizing outcome preferred by the debtors—will determine whether Z Gallerie survives,” interim CEO Mark Weinstein wrote in a declaration.

Despite joining the ranks of many the retailers bludgeoned by a bleak outlook for brick-and-mortar sales, “the outlook is bright and Z Gallerie is not ‘just another retailer’ facing market headwinds,” Weinstein wrote. February same store comparable sales were up five percent year-over-year and holiday e-commerce traffic was up 13 percent over 2017, Weinstein said.

Three siblings—Joe, Carole and Mike Zeiden—founded Z Gallerie in Sherman Oaks, California in 1979, originally operating it as a poster shop, according to court papers. The trio framed art in their parents’ garage at night, and that affection for art became the thrust of the company’s aesthetic. It began offering home furnishings and decor in 1983.

As of the petition date, Z Gallerie reported approximately $138 million of outstanding debt-funded obligations and cash balance of less than $2 million. Keybank has agreed to provide debtor-in-possession financing of up to $28 million. Z Gallerie’s petition estimates as much as $500 million in assets.

The company through a spokesperson declined to comment beyond its press release.

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