What a time for Z Gallerie Inc. to come out of bankruptcy (subscribers to The Deal Pipeline may read more here). The home furnishing retailer emerged from Chapter 11 two days ago, just in time for the Christmas season, but the latest signs on the pulse of the economy seem to show that the privately held Gardena, Calif.-based company will have a tough time luring shoppers. New and existing homeowners -- some of Z Gallerie's largest customer base -- are ailing, with the latest news that foreclosures are rising in metro areas and mortgage applications are sliding.
RealtyTrac announced Wednesday that foreclosures continued to rise, led by Las Vegas, as well as increased in smaller secondary metro areas. Las Vegas saw a 53% increase in foreclosures compared to the same year-ago period, and smaller communities such as Riverside, Calif., and Port St. Lucie, Fla., saw a jump of 11.8% and 40.1%, respectively. Meanwhile, industry trade group Mortgage Bankers Association said two weeks ago that it expects home foreclosures in the U.S. to rise before leveling off in late 2010.
It doesn't help Z Gallerie's potential customers that the Mortgage Bankers Association also said Wednesday its index of mortgage applications volume fell 12.3% in the week ended Oct. 23 compared to the prior week. Granted the fall is likely attributed to the expiration of the Nov. 30 deadline of the government's $8,000 tax credit for first-time home buyers, but the bottom line is there will be fewer new homeowners in the near-term who may want to spend their money on new home furnishings.
It's no coincidence that during the peak of the real estate market in 2006 Z Gallerie reported $236 million in sales from 74 nationwide locations, according to The Deal. As the real estate bubble burst in 2007, Z Gallerie's net income fell to $56,530 in 2007, which turned to a net loss of $4.7 million in 2008. Subscribers to The Deal Pipeline may read more here.
As far as Z Gallerie's future, the retailer can only put on an optimistic face. "We are pleased to have obtained support from our major constituencies and to have completed the [bankruptcy] process so quickly," Mike Zeiden, chief financial officer and co-founder of the company, told Furniture Today. - Gerald Magpily
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