Shopko, one of the most widespread chains of departmental stores in the United States, filed for Chapter 11 bankruptcy in 2019.
The company served the industry for around fifty years, before finally succumbing to the growing competition.
In this article, we’ll follow the life and times of the industry giant and explore some enticing questions, like why Shopko shut down and what remained of it after bankruptcy.
What is Shopko?
Shopko was a fairly popular chain of departmental stores, operating mainly in the heart of Wisconsin – the Green Bay area.
The industry giants had a huge role to play in making the retail business more accessible to the general public.
For instance, Shopko became the first venture to amalgamate different products and services into one solution.
Earlier, for instance, customers couldn’t get pharmaceutical products via retail stores.
But with the arrival of Shopko, products associated with healthcare and other similar niches became more accessible.
Mainly, Shopko did not focus on any particular industry.
They sold all kinds of products, related to big brackets of niches like clothing, bedding, furniture, jewelry, decorative pieces, beauty and healthcare products, electronics, housewares, contact lenses, and so on.
Shopko’s versatility, quality of products, and affordability were some of the main reasons why customers flocked to their departmental stores whenever they needed something for their homes.
The company’s immense popularity helped it survive for around fifty years in the United States.
What Happened to Shopko?
After running for over 57 years, Shopko had to liquidate all its assets in 2019. To save face, they filed for protection under Chapter 11 bankruptcy.
Unfortunately, no investor turned up to serve as the company’s saving grace.
While the company representatives wanted the business operations to continue, they needed to pump in some cash for that to happen.
After some rickety years in the industry, Shopko wasn’t enjoying a lot of profits.
Not for the lack of trying. Through the years, they tried to structure and restructure their business plan to get back on track.
However, the modern-day market seemed to elude the once-popular chain of retail stores.
It seemed like the end of the line for Shopko. However, nobody was ready to give up. They decided to lay down a restructuring plan to get the business up and running.
It would be their final attempt, and they wanted everything to be perfect.
In January 2019, they announced bankruptcy, simultaneously stating that the company shall close 100 of its departmental stores across the country. However, by June, no investors turned up.
The company, of course, needed money and some relief from its previous debts to get its plan off the ground. But with no external help, they might as well be crippled.
In light of that, company representatives decided that they had no choice but to cease all business operations.
In June 2019, the company decided to close down the remainder of its 363 jobs scattered throughout the United States.
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What Remained After Bankruptcy?
Fortunately for Shopko enthusiasts, the company didn’t disappear entirely. Sure, their retail operations shut down completely after the closure of all their stores.
However, Shopko’s Optical vertical is alive even today.
That’s a big twist in the story, isn’t it? Shopko was popular for revolutionizing the retail industry by adding more products to its superstores.
At one point, they had also started working in the optics industry.
After their appeal to the investors in January, the company didn’t have sufficient funds to accommodate a full-scale restructuring of operations.
However, they did get $480 million worth of investment from Wells Fargo and other lenders for securing the business.
It wasn’t much, but it was all they had. With that money, Shopko decided to reevaluate and restructure its optical-based stores.
At that time, they had 51 stores catering to the optics industry. The vertical was doing comparatively better than the other segments.
That encouraged Shopko officials to put their faith and money into their optical business.
History would suggest that the company made a wise decision, seeing as how Shopko Optics is still a big thing in 2022. They offer a range of products including lenses, frames, and glasses.
But more importantly, it’s their flagship service-based model that makes their business proposition eye-catching to the customers.
For instance, customers can easily schedule visits to an eye doctor and access other similar services.
The complete package of solutions helped Shopko achieve what other segments, particularly the retail-centric segments, couldn’t provide.
What Caused Shopko’s Untimely Bankruptcy?
We’ve already uncovered lots of hidden truths behind what resulted in Shopko’s untimely death. But the exact reason and nature of the company’s downfall remain a bit unclear.
After all, wasn’t Shopko an industry giant for over 50 years since its inception?
If we have to set any particular date, the story would begin in 2005, when Sun Capital acquired Shopko.
It was the year when the retail giant became a private company. As expected, a bidding war ensued.
First to pounce was Goldner Hawn Johnson & Morrison, a private equity firm.
They reportedly had an agreement to acquire Shopko at an evaluation of $715 million, or $24 for each share of the company.
Following the initial stages of the deal, several investors filed lawsuits against Shopko, citing that the company officials tried to shortchange the shareholders.
This was the point where the company’s rocky patch started. However, the lawsuits did not have any direct financial influence on the company’s future.
Shortly afterward, Goldner raised its bid to $25.50 per share due to increased competition.
However, the deal only became interesting when Sun Capital ventured in, initially offering $26.50 per share. Goldner responded by increasing their bid.
Ultimately, however, Sun Capital came out as the victory, sealing the deal at around $29 per share.
The deal indicated a full acquisition of Shopko, including all its 137 stores and other subsidiary assets like the 216 Pamida stores and 3 Shopko Express stores.
The rough evaluation of the entire deal stood at around $1.3 billion. Many people in the industry claim that this is where the company’s downfall started.
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Sun Capital’s Controversial Move
The aftermath of Sun Capital’s acquisition brought about rough outcomes.
After the deal went through, it took Sun less than a year to make a major financial move. The company decided to sell Shopko’s real estate.
The structure of the deal included a sale-leaseback transaction. The entire deal seemed a little shady, especially as it mirrored the case of Toys “R” Us.
The involvement of “private equity firms” added a lot of financial pressure on the company – both Toys “R” Us and Shopko.
Sun’s decision to sell Shopko’s real estate was a well-planned move to show Shopko’s balance sheet as a record laden with debt, while also stripping the company’s assets.
In addition to the ‘outrageous’ dealings, Sun also received a hefty income from Shopko in form of dividends.
The highest on-paper value of such compensation was a whopping $50 million payback in 2015.
Apart from that, Sun was quick to cease consulting fees worth $1 million for every quarter.
Moreover, Shopko had to pay another 1% consulting fee after at least six different business-related transactions.
It was a huge blow to Shopko’s finances, especially considering they had to pile debt onto their balance sheets to pay off the dividends.
A thorough audit of the situation revealed that Shopko allegedly had to shortchange Wisconsin $13 million in taxes.
Overall, Sun’s tenure as the vanguard of Shopko’s operations was riddled with controversy, allegations, and financial shortcomings.
Several prominent members of the company resigned, and they had to find urgent replacements to fill in the gaps.
The monetary value of the company took a huge blow. It seemed like a single sniff of the wind in the wrong direction could blow away the whole company.
The sniff, however, didn’t come. A whole storm did – the storm of bankruptcy, chapter 11, and the gradual closure of the retail brand.
In June 2019, the official, the original Shopko store closed its door permanently for the first time since 1962.
The History of Shopko
In such a fast-paced environment, it’s difficult to contemplate how any company could survive the demands of the market for decades. But that’s how Shopko achieved.
For years, they seemed invincible. It certainly builds intrigue around the history and origins of the company.
Shopko was one of the oldest companies in the United States, dating back to 1962. James Ruben, a former pharmacist, had some plans that could revolutionize the entire retail industry.
When he moved to Green Bay, he finally started his venture. And that’s how ShopKo Corporation came into existence. As an entrepreneur, he wanted to find a solution for the growing problem of inaccessibility to a larger brand of products.
Industries like pharmaceuticals and health were still a little off when it came to delivering to the masses. James Ruben, henceforth, decided to take matters into his account.
He thought of a well-planned framework for his company’s logistics that would allow him to combine the traditional services of retail stores with other services like those offered by pharmacies, eye centers, health-based institutions, and so on.
And thus, Shopko began its operations across various verticals, including but not limited to, optical lenses, frames, and other related products.
The Early Years
Shopko’s initial years oversaw sustained progression from a start-up into a retail brand.
Ruben, the CEO, and president of the company made little strides every year by opening new stores in different locations. By 1970, he established the company’s first headquarters on Ashland Avenue.
Right about this time, Shopko gained a lot of popularity among the locals as well. At one point, Shopko became synonymous with a general customer’s shopping list.
People all over the city would use phrases like “add it to your Shopko list” to cite their requirements.
In 1972, Shopko completed a merger with SuperValu stores. During this deal, Ruben also parted ways with the company to become the VP and director of Supervalu stores.
The responsibility of Shopko came upon the shoulders of William Tyrrell instead.
By the late 1970s, Shopko completed $100 million in sales. It was also at this point that Shopko expanded its vertical to include a range of optical-based products.
Public vs. Private – A Tiebreaker
In 1991, SuperValu decided that Shopko will continue to exist as a public-led company. That trend continued for more than 15 years, much to the opposition of several interest-led investors.
However, around 2004 or 2005, the company was open to becoming a private firm. That is when Sun Capital pounced on the infamous deal worth over a billion dollars.
After Sun’s takeover, Shopko never resurfaced as an industry giant. The changing market demanded something drastic from the company. Officials, therefore, invited investors to pump in money.
However, private ownership does not suit all companies. It certainly did not suit Shopko. The retail giant suffered an early demise, even after continuing its operations for more than 50 years.
Fortunately, a fraction of their legacy is still alive, coursing through the foundations of Shoko’s Optical vertical.