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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Smith’s Chairman Says He’s To Blame Glen Grodem Says Company Became Too Dependent On Interest Revenue

Associated Press

It’s no mystery to Glen Grodem, chairman and chief executive officer of Smith’s Home Furnishings, who’s to blame for the chain’s failure.

“Me,” he said without hesitation.

“I’m very disappointed. I’ve let a lot of people down.”

Last week, Smith’s gave up its desperate battle for survival, telling Judge Elizabeth Perris in U.S. Bankruptcy Court that it had decided to go out of business.

As hundreds of out-of-work Smith’s employees picked up forms to file with the state to claim back wages, the 56-year-old Grodem spoke with The Oregonian newspaper about the rise and fall of Smith’s Home Furnishings.

“The total impact of this has not hit me yet,” he said. “Today, obviously, is like being at a funeral.”

On Aug. 22, the home-furnishings company filed for protection under Chapter 11 of the bankruptcy code, seeking to remain in operation while reorganizing its debts. Last Tuesday, out of cash and with no further proposals for continued operation, the company opted for a liquidation under Chapter 7.

A trustee then was appointed to carry out the liquidation of the furniture, appliance and home electronics chain. The company, since 1980, had grown from a single store to as many as 18 in Oregon, Washington and Idaho.

When Smith’s filed for Chapter 11 protection, it listed assets of $69.3 million and liabilities of more than $71 million.

Grodem said Smith’s biggest cash-flow problem stemmed mainly from the financing arrangement it had with GE Capital Corp. Smith’s owes GE $14 million, according to court records.

Court records show GE financed 58 percent of Smith’s sales, providing up-front cash to Smith’s on all company credit-card and delayed-interest, delayed-payment programs.

Smith’s fell into trouble in recent years as more and more customers began avoiding interest payments by paying in full by the end of the period. That meant Smith’s had to assume a growing burden of interest payments itself.

Smith’s liability for the payments reached $12 million for 1994.

“That was it. That was the whole factor,” Grodem said. “We didn’t have the $12 million in profits to make that up.”

Grodem said the company’s ill-fated expansion into Washington was more than half completed when a cash crunch hit.

In late August, Smith’s closed all of its stores for a week. When it reopened with permission of the bankruptcy court, it left its eight Washington stores closed in a cost-cutting measure.

The Washington plan, Grodem says, had envisioned six or seven more stores in the Puget Sound area by mid-1996 to maximize efficiencies. He said a warehouse built in Kent was designed to work best supplying a larger number of stores.

“The biggest mistake I made,” Grodem said, “was when I stopped being aggressive.” He said he believes the Washington expansion should have been pushed forward.

George Smith, who founded Smith’s in 1946 and sold it to Grodem in 1980, now runs George Smith Warehouse Sales in Northeast Portland. Asked if he feels bad about Grodem’s situation, he said, “Not too much. We knew he was going in the wrong direction.”

Smith says he and Grodem “flew at different altitudes,” with Grodem always pushing grandiose expansion plans and Smith convinced it’s a full-time job to make one store fly.

Friends and associates describe Grodem as an excellent family man, a generous donor to charity and someone who genuinely cares about helping people. But his perpetually positive outlook may be his most notable trait.

Grodem, who himself invested about $4 million in the chain, said he has no plans to file a personal bankruptcy petition.

Grodem said the secured creditors of Smith’s are in a strong position. “I feel worst for the customers and the unsecured creditors. Their best chance was for Smith’s to survive,” he said.