Paper Source has filed for Chapter 11 bankruptcy and is hoping to sell the business, according to court filings. The retailer has received a stalking horse bid from its current lenders, led by MidCap Financial, that would provide $16.5 million in financing.
Paper Source already has begun closing 11 of its underperforming locations but will keep the remaining 147 stores and its ecommerce site open throughout the bankruptcy proceedings. As part of the process the retailer also is undergoing a “robust real estate rationalization” to evaluate its real estate portfolio and renegotiate lease terms.
The news comes a little over a year after rival stationary chain Papyrus filed for bankruptcy and shuttered all of its 254 stores across the U.S. and Canada. At the time, Paper Source acquired 30 of those Papyrus stores, increasing its footprint by 22%, but just weeks later COVID-19 stole the headlines.
In court papers, CFO Ronald Kruczynski said that prior to the pandemic, Paper Source “had been enjoying rapid expansion and sustained sales growth,” but that the company had “sustained deep damage to their finances and operations as a result of the ongoing COVID-19 pandemic.”
In 2020, Paper Source had gross sales of approximately $104 million, a 32% decline from the $153.2 million reported in 2019. Kruczynski said the decline was a direct result of store shutdowns, capacity restrictions and the general decline in store traffic brought on by the pandemic. Paper Source closed all of its stores on March 16, 2020 and began reopening slowly between late May and early September 2020, causing the company to miss out on two of its most important holidays – Easter and Mother’s Day.
Kruczynski also pointed to the negative impact that canceled weddings had on the company’s wedding business — traditionally a key revenue driver, particularly in the spring and summer seasons. Like many retailers, some of these losses were offset by growth on the ecommerce side of the business, with online accounting for 24% of the company’s sales in 2020, up from 10% in 2019. Looking forward, Kruczynski said he expects ecommerce to remain key for the company thanks to new offerings implemented last year, including curbside pickup, expanding custom print offerings and a growing subscription program.
An auction is scheduled for April 21, 2021, with the sale set to be approved on April 30, 2021.