Shopko files for bankruptcy; to reduce store footprint, sell Rx business

A “challenging retail environment’ and heavy debt has taken its toll on Shopko.

Shopko filed for Chapter 11 bankruptcy protection, citing excess debt and ongoing competitive pressures. The retailer, which operates over 360 stores, said it will continue to operate and serve its customers, vendors, partners and employees during the restructuring process. It reported assets of less than $1 billion and liabilities between $1 billion and $10 billion.

The filing was not unexpected. McKesson Corp. has said it supplied Shopko with $67 million in drugs since Nov. 11 but has not been paid since early December. This week, the Rx drug supplier asked a judge for a restraining order to keep Shopko from selling the medications it has supplied. McKesson attorney Jeff Garfinkle said during a court hearing that Shopko is expected to file for bankruptcy protection Jan. 15.

As part of the reorganization, Shopko plans to close an additional 38 stores (on top of some 45 during the past year), relocate more than 20 Optical centers to freestanding locations and conduct an auction process for its pharmacy business. All Shopko Optical centers and pharmacies will remain open during the process.

"This decision is a difficult, but necessary one," said Russ Steinhorst, CEO, Shopko. "In a challenging retail environment, we have had to make some very tough choices, but we are confident that by operating a smaller and more focused store footprint, we will be able to build a stronger Shopko that will better serve our customers, vendors, employees and other stakeholders through this process."

A bright spot for Shopko is its optical business. Encouraged by the performance of its four freestanding Optical centers that were opened in 2018, the retailer plans to continue to grow its optical business, opening additional freestanding Optical locations during 2019.

Founded in 1962 and based in Green Bay, Wisconsin, Shopko Stores Operating Co., was bought by Sun Capital in 2005 for about $1.1 billion. The retailer operates more than 360 stores in 26 states throughout the Central, Western and Pacific Northwest regions. Retail formats include 126 Shopko stores, providing quality name-brand merchandise, great values, pharmacy and optical services in small to mid-sized cities; five Shopko Express Rx stores, neighborhood drugstore concept; six Shopko Pharmacy locations; four Shopko Optical locations and 234 Shopko Hometown stores, a smaller concept store.

Shopko has obtained up to $480M debtor-in-possession financing from certain of its secured lenders, led by Wells Fargo, N.A. as administrative agent, to help fund and protect its operations during the Chapter 11 process. The retailer said suppliers and other business partners and vendors will be paid in a timely manner for authorized goods and services provided during the Chapter 11 process.

Shopko is also filing customary first day motions that, once approved by the court, will allow the Company to smoothly transition its business into Chapter 11, including, among other things, granting authority to pay wages, salaries, benefits, and pay vendors and suppliers in the ordinary course for authorized goods and services provided on or after the filing date.