Buck or Two parent files for protection

The parent of the Buck or Two chain will shutter the bulk of its corporate-owned stores, lay off hundreds of workers and try to sell its franchising arm as the dollar store operator – buckling under the weight of “accelerating losses” and rising expenses as its corporate stores – filed for court protection from its creditors yesterday.

The Globe and Mail
August 17, 2004

Buck or Two parent files for protection
Richard Bloom

The parent of the Buck or Two chain will shutter the bulk of its corporate-owned stores, lay off hundreds of workers and try to sell its franchising arm as the dollar store operator – buckling under the weight of “accelerating losses” and rising expenses as its corporate stores – filed for court protection from its creditors yesterday.

Denninghouse Inc. president and chief operating officer Gregg Treadway said in an interview that the company will close 80 of its 93 corporate-owned locations in the very near future. The remainder of the 313 Buck or Two and Dollar Ou Deux store across Canada are franchised.

Approximately 500 people will lose their jobs as a result of the closings, including 40 layoffs at the company’s head office in Concord, Ont.

“The magnitude of the losses of those corporate stores more than undid the good work that our franchisees were doing,” Mr. Treadway said.

“Our object is to maintain the value of that [franchising] asset and help that group of people under stronger more stable ownership,” he said.

After being halted for most of the day, thinly traded shares of Denninghouse, which has had an average daily trading volume of about 4,800 over the past three months, plunged 49 per cent to 60 cents on the Toronto Stock Exchange, bouncing off an intraday low of 40 cents. Over the past year, the shares have been as high as $5.75.

The news from the 17-year-old company followed a July 30 announcement that it had launched a “strategic review” of its operations and had closed 11 of its corporate-owned stores so far this year. At that time, it said it was trying to stabilize as a profitable franchiser and position itself to launch a new format under the Smartshop brand.

The company's recent woes are a dramatic shift from only three years ago. In 2001, Denninghouse was investing in bigger and more welcoming stores, updating its computer systems to ensure better supplies of in-demand merchandise and launching more attractive displays featuring a bigger selection of inventory.

It predicted at that time that it would have 500 stores within a few years.

“We’re shocked,” said retail consultant John Williams at J.C. Williams Group Ltd. in Toronto.

“This has been the leading dollar store in Canada and they just brought up a new high-power COO from the United States,” he said, referring to Mr. Treadway, who was hired away from Kmart Holding Corp.

Mr. Treadway previously worked at retail giants Wal-Mart Stores Inc., Toys “R” Us Inc. and Dollar General Corp.

He said many factors led to the troubles at the corporate stores, including mounting competition.

Mr. Treadway said the decision to sell its franchise business is an opportunity for rival Dollarama – which snapped up 60 BiWay stores when that chain collapsed in 2001 – to beef up its presence or for an American retailer looking got make an entry into Canada.

“A dollar store is a tough one to operate and make a lot of money on – everything is a buck or two, no pun intended,” Mr. Williams said. “The gross margins are very high but the dollar amount is so small. It needs an owner-operator…or that sort of mentality to make a profit.”

RSM Richter Inc. has been appointed the court monitor overseeing the company and will lead the search for buyers of its franchise business.

The Smartshop brand will be launched at the remaining 13 corporate-owned stores, Mr. Treadway said. He would not say when that would occur, adding the company’s attention over the near term will be on emerging from Companies’ Creditors Arrangement Act (CCAA) protection.

Smartshop is a smaller version of big-box discount retailers, such as Wal-Mart and Zellers.

The stores will be about 6,000 square feet in size and offer brand-name products, such as food and cleaning supplies, as opposed to the dollar-store concept of no-name lines.

More than one-third of all Buck or Two stores are in Ontario. The 13 stores that will change to that banner are in Nova Scotia and Ontario.

“It really gives the consumer an alternative to fighting the big parking lot and the big store,” Mr. Treadway said. “They can get in, get what they want, get checked out quickly and get home.”

In June, Denninghouse reported its fiscal 2004 system-wide sales climbed to $239.4-million from $232-million in 2003 while corporate stores and franchise fees, rose to $57.7-million from $50.9-million.

However, it posted a loss of $2.2-million, compared with a 2003 profit of $3.4-million.

With files from Canadian Press


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