"It is important for you to understand that Goody's is not going out of business," Chief Executive Paul White wrote in an open letter to customers posted on the company Web page, where the company revealed it will close more than a quarter of its locations.
"While we expect the majority of our stores will remain open and will continue to operate without interruption, we plan to close some locations over the coming weeks," he wrote.
The company identified 69 stores it will close -- in 18 of the 20 states where Goody's operates. Most of these will close in the states where Goody's has 30 or more stores each -- North Carolina, Georgia, Alabama and Tennessee. That includes all three Goody's in Chattanooga, and five of six Goody's in Florida.
The company couldn't immediately say how many of its 12,000 employees will lose their jobs.
The company said it was filing a voluntary petition for reorganization under Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware, where the company is registered.
The filing comes less than three years after corporate namesake and then chairman-CEO Robert Goodfriend embraced a $327 million buyout by New York investment firms Prentice Capital Management and GMM Capital to take private the company founded by his father as an Athens, Tenn., outlet store in 1953.
Today, Goody's operates 355 stores across the South and Midwest. In January, the chain announced layoffs of 25 of its 500 employees at its corporate headquarters in Knoxville.
The company said it decided to file for Chapter 11 after reviewing alternatives to address "pressures from tightening credit markets, strain on merchandise flow and a sizable but isolated number of underperforming stores in the chain."
"The decision to close a large number of stores and further consolidate operations was a difficult one and we regret the impact that this will have on some of our employees," White said in a statement. "However, we believe these are necessary steps as we work to improve the business and return to profitability."
White was hired in March from Wisconsin-based ShopKo. He succeeded Chuck Turlinksi, a former CEO of The Limited, who lasted with Goody's about a year.
"My sense is that they probably got squeezed a little bit by the Targets and the Wal-Marts and the Kohl's," said Cole Piper, an executive in residence at the University of Tennessee Business School.
"Goody's for a long time had a very good strategy. They went into the second- and third-tier markets, and they pretty much had the markets to themselves. Then with the expansions of Wal-Mart (and others), there was just more competition."
Competition mixed with a slowdown in the economy, the departure of Goodfriend -- the public face of the company -- and several attempts to redefine its merchandising strategy. Those combined for a "perfect storm," Piper said.
"I think they can (rebound), but I think they are going to have to cut back some, consolidate and get back to whatever base they determine is their most profitable base," said Piper, a longtime executive with the former Proffitt's department store chain. "But you know, it is a tough time to be in the retail business."
"We are certain that we will emerge from this situation as a stronger and healthier company," White said.
Besides closing stores, Goody's said it will consolidate its distribution centers by closing one facility in Russellville, Ark., reduce its expenses and create "a more appropriate capital structure."
The company said it is seeking approval to pay its employees, continue various benefits and honor customer programs including layaway services and gift cards.
Goody's also said it has secured a commitment for $210 million in debtor-in-possesion financing to add to its working capital and provide enough liquidity while it reorganizes.
The financing includes $175 million under a revolving credit facility from General Electric Capital Corp., $15 million under a term loan from GB Merchant Partners LLC and $20 million under a junior term loan facility from PGDYS Lending LLC. Prentice Capital Management is the managing member of PGDYS LLC.
Goody's operates stores in Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, Texas, Virginia and West Virginia.