Target seeks P'tex chargebacks

By Brent Felgner -- Home Textiles Today, 10/27/2003 12:00:00 AM

WILMINGTON, DE —

With only days remaining before the sale closing that will effectively liquidate Pillowtex, Target Corp. and three of its principal retail businesses have filed court papers seeking nearly $2.5 million in chargebacks against the defunct mill.

The action, filed with the U.S. Bankruptcy Court for the District of Delaware last week, seeks "precautionary relief" to offset and recoup the charges against the remaining accounts payable by Target to Pillowtex — an amount totaling about $1.8 million, according to the filing. The chargebacks are being sought by Target Stores for $260,082; Marshall Field's for $593,400; and Mervyn's for $1,594,274.

If the charges are recognized by the court in a scheduled Nov. 7 hearing, one conceivable result might have Pillowtex owing Target nearly $700,000.

Representatives of Target Corporation and Pillowtex had not returned calls seeking comment by mid-afternoon Friday.

Substantially all of Pillowtex's assets were auctioned off to GGST LLC, a liquidation consortium, for $128 million earlier this month. Target Brands was among the unsuccessful bidders for components of the Pillowtex in that auction. The GGST sale is scheduled to close no later than Nov. 6.

The court filing states that Target Corp. and Mervyn's are suffering "considerable hardships" because of Pillowtex's "unscheduled" bankruptcy and liquidation.

For example, "Mervyn's will be forced to significantly markdown the home goods to provide an incentive to their guests to purchase the home goods particularly where inventory is incomplete," the company stated. Moreover, Target Corp. and Mervyn's "have or will be forced to negotiate with new vendors from a weakened bargaining position, T&M will also suffer from a disruption to inventory flow as they clearance the home goods to make room for new home design merchandise. T&M are damaged from these disruptions and expenses and having to incur additional significant expenses of closing out the discontinued home goods."

Further, "the unavailability of the home goods creates an impression with guests that T&M are unable to meet all of their guests' shopping needs. The unavailability of the home goods may also cause the guests of T&M to choose to shop elsewhere," the papers claimed.

Target Stores expects to lose "a significant amount of profits from its sales, which is expected to total at least in the amount of $200,000," said senior bath and rug buyer Dan Epley, in an affidavit.

Mervyn's will incur damages of at least $822,461 and additional lost sales amounting to $721,813, according to Christi Langstaff, buyer of home basic and fashion bedding, also in an affidavit. In an additional exhibit, Kelly Geadelmann, director of merchandise planning for Marshall Field's, stated the department store will lose at least $480,900 in sales.

In the original complaint the company stated, "T&M are obligated to pay the Debtors the amount remaining after assessing and making such deductions. This remaining amount is the only amount that can properly be considered property of the Debtor's estates."

Schedule of accounts payable, chargebacks and damages
Source: Target Corp. court filings