Gottschalks Inc. filed for bankruptcy protection on Wednesday, saying it will use the Chapter 11 law to stay open while it seeks a buyer.

But the horrendous business climate, coupled with a squeeze on credit, will make potential buyers less likely to step forward in time. The Central Valley department store chain has a March 24 deadline to get a deal done.

"Even the buyers who want to buy can't buy," said New York retail consultant Burt Flickinger III. "Doing an auction in the depths of this retail recession is going to have a higher degree of difficulty."

The recession just claimed Mervyns and could soon force Circuit City Stores Inc., which is in Chapter 11, out of business as well. Goody's, a clothing chain in the Southeast that already said it would liquidate, filed for bankruptcy protection Wednesday.

Meanwhile, the Commerce Department said U.S. retail sales fell 9.8 percent in December, compared with a year earlier, and were down 2.7 percent from the previous month.

The Gottschalks bankruptcy filing capped a three-month struggle for the 104-year-old Fresno retailer, a mid-priced department store that serves many Central Valley towns. The company has lost money the past two years and warned in November that it could run out of cash by late January. Last month, a bailout plan collapsed.

"A bad day in Fresno," said Gottschalks board member Joseph Penbera. "A sad day for a lot of communities, if we don't save this."

But he dismissed the idea that Gottschalks can't survive. "Somebody could pick this company up relatively cheaply and have $600 million in (annual) sales," he said. "We feel there is real value in Gottschalks going forward."

The company, which employs 5,200 workers, obtained new financing and said it will operate business as usual. But under the terms of its new loan, it must have a sale completed by March 24, according to papers filed in U.S. Bankruptcy Court in Delaware.

"We just have a very short window in which to work," Penbera said.

Penbera acknowledged that a buyer would likely close some of Gottschalks' existing 59 stores. The company also has three specialty stores called Village East. In court papers, Gottschalks said its debts total $197.1 million.

"Whoever buys them is going to shrink it down," said Jeff Green, a consultant in Mill Valley. "I question if they'll even be able to make a deal."

The company operates four stores in greater Sacramento, and things were quiet Wednesday morning at the store at Country Club Plaza. Promotional signs announced post-holiday markdowns of up to 80 percent off. Shoppers struggled with the news.

"We're some of their biggest customers," said Gloria Walloupe of Sacramento, who's shopped Gottschalks in Fresno and Sacramento for 30 years. "We hope it stays open. I can always find something."

Gottschalks' troubles, along with store closures recently announced by Macy's (none in Sacramento), were too much for Bonnie Riley of Sacramento.

"It's scary," she said. "It's scaring me to death."

The bankruptcy protection filing sent Gottschalks' stock down 3 cents a share, to 15 cents, on the electronic "pink sheets" market.

Although it went public in 1986, Gottschalks has retained a family, community-oriented culture, especially in its Fresno hometown. Joe Levy, the grand-nephew of founder Emil Gottschalk, remains a board member.

"The hope is that it's a reorganization and they haven't closed the doors," said Al Smith, president of the Fresno Chamber of Commerce. "Mervyns went away, and that's a shame, but there isn't the emotional attachment in this community. … A lot of people in this community were raised going to Gottschalks."

Traditional department stores have been hammered in recent years by competition from discounters and high-end retailers. Gottschalks also may have been stretched thin by the distribution costs associated with its extended footprint, with stores as far away as the Palm Springs area and Fairbanks, Alaska.

Although it was profitable through 2006, revenues have suffered in recent years. In the fiscal year that ends Jan. 31, Gottschalks expects to lose $12 million on a cash-flow basis, according to court papers. Revenue is expected to drop 11 percent, to $557 million.

sources:http://www.sacbee.com/288/story/1543493.html

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