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CEO: Gottschalks closing-business sales to start this week

2:08 p.m.: Things are moving quickly at Gottschalks now that its fate — closure at the hands of store liquidators — is all but finalized.

James Famalette, chairman and CEO of the bankrupt Fresno-based department store chain, said today that going-out-of-business sales will begin Thursday or Friday at the company's outlets across the western U.S.

"Obviously this is a very sad day at the office," Famalette wrote in an e-mail from Delaware, where the bankruptcy auction was held Monday and where a judge will approve the winning bid Wednesday morning in a court hearing.

Gottschalks, founded in 1904, operates 58 department stores and three specialty stores in California, Oregon, Washington, Alaska, Idaho and Nevada, and employs about 4,000 people throughout the company, Famalette said.

Liquidation sales -- to be conducted by the same four companies that ran the closing sales for bankrupt retailers Mervyns and Circuit City -- are expected to take between 45 and 90 days, Famalette said.

Most of the employees who work in stores "should be fine unti the end of the sale," Famalette said.

But some employees will feel the fallout much sooner. Employees at Gottschalks' corporate headquarters in north Fresno were notified today that Friday will be the last day for most, "except for a small staff needed for the liquidator and wind-down," Famalette said. The announcement affects about 260 of approximately 340 workers at the corporate office.

Monday's auction went late into the night as two liquidation groups apparently wrangled over the rights to sell off Gottschalks' assets. A third bidder, Shandong Commercial Group from China, had qualified to participate in the auction and was the only entity with plans to keep Gottschalks afloat.

But Famalette said Shandong -- controlled by the provincial government in China's Shandong Province -- was unable to bring together its financing and clear regulatory hurdles by the Chinese government in time to satisfy Gottschalks' creditors and provide a viable bid at Monday's auction.

Famalette said the winning bid calls for the liquidation consortium -- SB Capital Group of New York, Tiger Capital Group of Boston, Great American Group of Los Angeles and Hudson Capital Partners of Massachusetts -- to provide 98% of the value of Gottschalks' inventory at its stores and distribution center in Madera. That's 13% higher than the group's original starting bid of 85% of the inventory value, Famalette said.

The merchandise value will be determined by an inventory count at select Gottschalks stores.

Gottschalks' real-estate holdings -- five store sites it owns, as well as its leases for stores, its corporate headquarters and distribution center -- will likely be auctioned in a separate sale to be held in May. A real-estate sale date will be scheduled by the bankruptcy court Wednesday.

12:29 p.m.: Workers at Gottschalks' north Fresno corporate headquarters were told today the office will close Friday.

An employee in the corporate headquarters who spoke on condition of anonymity said some workers were cleaning out their desks prior to the 9:30 a.m. meeting when they were told of the closure.

A consortium of liquidators on Monday had the top bid for the company, which will close its doors, Gottschalks CEO James Famalette said.

Earlier this year, as Gottschalks filed its bankruptcy petition in Delaware, the company notified its 339 corporate employees and the state Employment Development Department that layoffs at the corporate office were possible in March, depending on the outcome of the bankruptcy case. Another potential layoff notice was filed in January for 105 employees at Gottschalks' distribution center in Madera.

Famalette had earlier said he hoped such layoffs could be averted if the company were sold as a "going concern" instead of as a liquidation.

At the Gottschalks store in Visalia Mall, the atmosphere was somber when employees met before the store opened this morning.

"We gathered as a store this morning and talked about the situation," store manager Dave Hawkes said. "There were a lot of tears and a lot of sadness."

"But we’re going to be here for another three months for liquidation, so we’re going to do our best to take care of our customers," he said. "We're going to stay busy and keep doing our jobs."

Managers at the River Park store in Fresno and Sierra Vista store in Clovis declined to comment. Other store managers in the Fresno area were not immediately available.

11:12 a.m.: Liquidators won the battle for Gottschalks Inc. and will shut down the company, CEO James Famalette said late Monday.

“It’s very difficult to talk right now,” said Famalette, his voice shaking, a little more than an hour after the auction ended in Delaware.

He said Gottschalks would begin notifying employees today about what will happen. Going-out-of-business sales could begin as early as this week.

Fresno Mayor Ashley Swearengin said Tuesday she was disappointed to hear that the Fresno-based department store chain would be liquidated.

"Our focus now is helping the folks who find themselves without a job," she said. "We'll be meeting with private sector employers and seeing if there is a way for the city to help them find work for these people."

Gottschalks, founded in Fresno in 1904, operates 58 department stores and three specialty stores. It has about 5,200 employees in California, Oregon, Washington, Alaska, Idaho and Nevada.

The liquidators were one of three bidders, including another liquidator and a Chinese company, Shandong Commercial Group, that intended to keep some of the stores open.

“We tried as hard as we could to make this work with the Shandong people, but there were too many things financially, with the size of the deal, and regulatory issues, that they just couldn’t get done in time,” Famalette said from Delaware.

Famalette said that while Gottschalks’ merchandise and other assets will be liquidated, he hopes to continue negotiations with Shandong for a post-liquidation revival of Gottschalks in some form. He was unable to discuss details of those talks Monday night.

Famalette said the group chosen by the company earlier this month to make the opening bid was the winner Monday. That consortium of liquidators includes SB Capital Group of New York, Tiger Capital Group of Boston, Great American Group of Los Angeles and Hudson Capital Partners of Massachusetts.

The same four companies also conducted the going-out-of-business sales for bankrupt retailers Mervyns and Circuit City, and were joined by two other asset-disposition companies in the liquidation of Linens N Things.

Famalette said the auction, which began at 10 a.m. Monday, was not concluded until 11 p.m. Eastern time.

The auction was held behind closed doors, and the results have not been officially announced by the bankruptcy court.

The prevailing bid is due to be approved at a court hearing Wednesday by U.S. District Bankruptcy Court Judge Kevin Carey in Wilmington, Del.

Once the order is signed, going-out-of-business sales at Gottschalks stores could start the next day — perhaps as early as late this week.

Also on Wednesday, an auction date is expected to be set to deal with Gottschalks’ real-estate assets: its leases and the store sites it owns.

Gottschalks filed for Chapter 11 bankruptcy in mid-January in hopes of either reorganizing its debt or finding a buyer.

The company released a statement Monday night. In it, Famalette said: “Regrettably, liquidation is now the only path for our company. We are deeply disappointed with this outcome and the impact it will have on our employees, customers, business partners and the communities we have served for 105 years.”

The original liquidation agreement Gottschalks had with the winning consortium indicated that current Gottschalks store employees may be kept on for the closing sales.

The liquidators must identify which employees it wishes to keep before the sale begins. Those employees will remain on Gottschalks’ payroll, but liquidators may “stop using any retained employees at any time during the sale” if they give Gottschalks a seven-day notice, according to the agreement. It will be up to Gottschalks to terminate any employees that aren’t needed for the liquidation.

Some employees who stay with the stores for the liquidation sales may receive retention bonuses of up to 10% of their base pay, according to the agreement.

Liquidation sales are expected to be concluded by July 15.

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