Did regional constraints doom Shopko?
Like other retailers in recent years, Shopko blamed its trip to bankruptcy court in part on the shift away from brick-and-mortar to online selling, but it also cited challenges competing as a regional player.
The operator of 360 general merchandise and pharmacy stores located throughout the Midwest, Western and Pacific Northwest regions filed for bankruptcy protection in Nebraska on January 16. Given its remote locations, the general merchandiser stands out for carrying premium brands, including Nike and Adidas.
In an affidavit in bankruptcy court, Russell Steinhorst, Shopko’s CEO, wrote that the retailer’s poor performance in recent years that led to the filing was in part due to competition from online sellers, with Shopko having an “underdeveloped” online presence.
Mr. Steinhorst wrote, “Retail companies like Shopko, with a substantial physical footprint, bear higher expenses than web-based retailers and are heavily dependent on store traffic, which has decreased significantly as consumers increasingly shop online rather than in malls or shopping centers.”
He also cited increased traffic to national retailers, such as Walmart, Target and Kohl’s. The larger retailers, he wrote, can offer lower prices and “still bear the high operating expenses associated with brick-and-mortar retail.”
Finally, the consolidation in the pharmacy industry has led to a lack of pricing power for retail pharmacies of Shopko’s size. Mr. Steinhorst wrote, “Shopko lacks purchasing scale to purchase drugs at costs similar to large national pharmacy chains.”
Shopko has also been impacted by higher-than-average inventory costs due to a dispute with its primary pharmaceutical supplier, McKesson Corp.
A heavy debt load brought on by its leveraged buy-out that took it private in 2005 inhibited Shopko’s ability to restructure outside of bankruptcy. Underinvesting by its private-equity owner, Sun Capital, was seen by some as significant reason for Shopko’s challenges.
Some reports also cited competition from other national players, such as Dollar General, CVS and Walgreens, as well as strong regional rivals, including Blain’s Farm & Fleet and Tractor Supply.
In bankruptcy proceedings, Shopko plans to close 105 stores, sell its remaining pharmacy units and reorganize or find a buyer for its general merchandise stores.
- Shopko Announces Financial Restructuring – Shopko
- Declaration Of Russell L. Steinhorst, Chief Executive Officer, Of Specialty Retail Shops Holding Corp., In Support Of Chapter 11 Petitions And First Day Motions – U.S. Bankruptcy Court – Nebraska
- Shopko files for bankruptcy, will close 105 stores, including 16 in Wisconsin – Green Bay Gazette
- Shopko Is Filing For Bankruptcy And Closing More Than 100 Stores – Arizona Daily Star
- Shoppers and experts react to Shopko bankruptcy – WGEM
INSTANT POLL: Has it become tougher for regional chains to compete against national retailers in recent years? Of all the reasons cited, which do you think was the biggest cause of Shopko’s slide into bankruptcy?