Ritz Camera & Image, the Washington, D.C. based photography retail chain, filed for chapter 11 bankruptcy protection last month for the second time in just 3 years. Founded in 1936, Ritz built a profitable business by selling cameras and then processing film for its consumers. As discussed an earlier submission to this blog, Kodak similarly filed the second time for bankruptcy protection in January of this year.
Ritz operates in 34 states, primarily through consumer electronic retail stores. In its filings with the Court, Ritz listed between $50 million and $100 million in assets and liabilities
The digital photography revolution has rendered many of Ritz’s products and services obsolete, and the Company failed to adapt quickly enough to the new cultural preferences. Many industry analysts could have predicted the recent distress endured by the traditional, brick and mortar companies, like Ritz, as competition from on-line rivals has significantly impacted the sales at these companies. Other advances in technology, like cell phones with cameras, also makes photo development less in demand.
In Ritz case, despite a new investor who brought $8 million in fresh capital after the first bankruptcy in the winter of 2009, the Company was never able to gather enough capital to keep its operations running. While the Company recently saw sales increase by more than 20 percent, the increase in revenues was still not enough to prevent the bankruptcy filing.
As part of its restructuring plan, Ritz is looking to close 128 of its 265 retail stores. Pursuant to section 365 of the Bankruptcy Code, a chapter 11 debtor has the right to reject (or cancel) its lease obligations, leaving any affected landlords with only unsecured claim that is statutorily capped to a portion of the remaining life of the lease. To further reduce operating expenses, Ritz also plans to lay off approximately 50% of its 2,000 employees.
In short, Ritz is trying to reinvent the way it does business. The hope is that Ritz has enough time to avoid the same perils that prevented other industry leaders, like Blockbuster, from ever effectively making it out of bankruptcy. As appears to be the case with Ritz, Blockbuster slid into bankruptcy because it could no longer compete with rivals who were bringing movies directly to consumers homes without the burdens of brick and mortar expenses.