FRESNO — As liquidation sales kick into gear at Gottschalks stores across the Western United States, there's a question hanging in the air: What went wrong?
From humble beginnings in the basement and first floor of downtown Fresno's Forsythe Building in 1904, Emil Gottschalk's single dry-goods store grew into a respected regional chain with more than 60 stores.
What seemed like a solid legacy came apart amid what retail experts describe as a perfect storm: high business costs, changing consumer tastes, more competition, ever-tighter credit and an economy in free fall.
The result: a bankruptcy filing in mid-January, followed by going-out-of-business sales to be wrapped up by mid-July.
Experts point not at management missteps, but at the very nature of Gottschalks' business to suggest executives likely could have done little to avoid bankruptcy and liquidation.
"In Gottschalks' case, this particular business model — a moderately priced department store — is simply obsolete," said Bob Gordman, head of the Gordman Group retail consulting firm in Colorado. "It's not working for anybody."
Joe Levy, chairman emeritus of Gottschalks and grand-nephew of the founder's wife, only shakes his head at the company's fate.
"It happened so rapidly," he said. "Back in November, I never dreamed seeing it at this level, what happened just in 90 days."
Although the demise of Gottschalks might seem rapid and marked by calamitous events — the company's ignoble bouncing from the New York Stock Exchange in October, the announcement last fall and subsequent collapse of a $30 million partnership deal with a Chinese investment group, the filing of the bankruptcy petition in January — the end likely began much earlier.
Warning signs surfaced earlier this decade, even as the economy was booming.
In 2004, Gottschalks reported profits of almost $5.3 million. It dipped slightly to $5.2 million in 2005 and slipped further to $2.6 million in 2006. The bottom fell out in 2007 as the economy soured: Gottschalks reported a loss of $12.4 million.
Gordman and others said they could think of only one comparable small regional department store retailer: Boscov's, which operates 39 stores in the mid-Atlantic region.
Like Gottschalks, Boscov's is in bankruptcy. Founded in 1911, Boscov's operated about 50 stores before it sought protection in August, listing $479 million in liabilities. Its bankruptcy case is being sorted out in Delaware.
Both companies occupy a precarious niche. They are smaller and more upscale in product lines than discounters Wal-Mart, Target or Kmart.
They are smaller and not quite as high-end as Macy's or Dillard's. And they are smaller than midpriced retailers such as the 280-store Bon-Ton chain in the Northeast and Midwest or Belk stores in the South.
Nearly all department store companies are seeing sales and profits tumble. Of Gottschalks' price-point peers, Bon-Ton reported a loss of $169 million in 2008 and the 307-store Belk chain lost $213 million. But wherever they are on the price spectrum, the bigger companies have greater cash flow and better access to credit, and are better positioned to outlast the economic turmoil.
Gordman said the model that Gottschalks and other regional chains followed through the 20th century just doesn't work anymore. "Very few people have taken that model and adapted it successfully," he said. "It's had its run, but it's coming to an end."
The competition is fierce for companies like Gottschalks, said George Whalin, a 48-year vet-eran retailer and consultant with Retail Management Consultants in Carlsbad.
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