Gottschalks Survival Strategy

December 19, 2008 5:45:28 PM PST
Fresno-based Gottschalks is trying to figure out what to do next, now that a multi-million dollar rescue deal has fallen through.For the first time, the company is responding to the latest bad news in what's been a brutal year financially for the company.

The company issued a press release Friday afternoon saying "Gottschalks remains in active discussions with Everbright [the original company Gottschalks was dealing with] as well as another party to structure a new potential transaction."

A year ago the department store's stock was trading at $3.49 a share. Thursday, it was trading at just $0.45. And Friday, in the wake of news that the deal has fallen part, Gottschalks stock value plunged even lower ? to just $0.16 a share.

The River Park location is one of Gottschalks' newest stores and although closing stores may be one key to the company's survival, that particular store is probably also critical to the company, because of its location at River Park, where younger people shop.

As shoppers make their way through Gottschalks stores this holiday season, the company is doing some shopping of its own -- for a lifeline.

A Chinese company pulled out of a plan to give it a $30 million shot in the arm Thursday and the days look dark for the department store.

One of the board of directors, Dr. Joe Penbera, told Action News, "The reports of our demise are greatly exaggerated." At their corporate headquarters in north Fresno, executives spent Friday in wall-to-wall conference calls.

They say they're in negotiations for new investments, but they aren't giving any details. Local economists say, if Gottschalks does survive, it may look a lot different than the store people have grown used to over the last 104 years. "This may be the wakeup call that they can respond to because I think they have the talent," said Fresno State professor Dr. Bill Rice. "I think they've been kind of cruising, thinking maybe the market would get better."

The company lost nearly $20 million over the first three quarters of this year as the economy faltered. But it also lost more than $12 million last year, before most people were feeling the economy's pinch.

Dr. Rice says Gottschalks got hit hard early in the recession because they target older customers, who are often the first people to stop spending as the economy slows. "That's the problem we're having with Gottschalks is they are plugged into a group of people who naturally respond to economic stimulus," he said. "Those people have pulled back their resources. Younger consumers are going to other stores."

Rice says the old Gottschalks formula of big stores and a small online presence will have to change. It'll need to focus more on the online business and a younger demographic. But if they don't, the ripple effect will be terrible -- shutting down dozens of stores and leaving vacant space at several malls -- an economic earthquake the entire valley will feel.

Gottschalks employs more than 4,000 people, most of them in the Valley, and Dr. Rice says it may have to lay off a lot of them as it streamlines the business.

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