Paper Source, a Chicago-based retailer of greeting cards and gifts that had been expanding rapidly before the COVID-19 pandemic, filed for bankruptcy Tuesday.
It’s the latest retailer to seek bankruptcy protection during a pandemic that left bricks-and-mortar stores closed for months. The company filed under Chapter 11 with the U.S. Bankruptcy Court for the Eastern District of Virginia, which means it will continue operating while reorganizing its debt.
All stores are expected to remain open, other than 11 that closed during the pandemic. None of those that closed were in Illinois.
The company, which started as a shop in Chicago in 1983, grew to more than 160 stores by last spring after buying 27 leases from its bankrupt rival Papyrus. At the time, CEO Winnie Park said the company had never closed a single store. Weeks later, all were forced to close during the pandemic.
Stores accounted for about 83% of the company’s sales at the time, and though online sales grew, the extended store closures, capacity restrictions and lost wedding business meant sales plunged 32% in 2020, according to bankruptcy court filings.
While some landlords agreed to reduce the company’s rent, those deals expired at the end of 2020 and the retailer, which had significant debt, was “left no other option” but to seek bankruptcy protection, Chief Financial Officer Ronald Kruczynski said in a bankruptcy court filing.
Paper Source, which has about 1,700 employees, said MidCap Financial agreed to serve as an initial bidder, or “stalking horse,” to purchase the company’s assets. The agreement includes $16.5 million in financing to help the company continue operating. A sale is expected to close in about 90 days.
“The Covid-19 pandemic presented real challenges to our stores business, but this sale will help us to emerge stronger,” Park said in a news release.
