Just four months after the Yale Co-op shut down, Wallace’s College Book Co., the firm that was supposed to salvage the financially floundering Co-op, filed for Chapter 11 bankruptcy itself.
This step was necessary “to protect the companies and provide an opportunity for recovery and reorganization,” Wallace’s said in a statement. The company will continue to operate its 92 college bookstores while it is in Chapter 11.
The Yale Co-op’s lease with University Properties expired in 1997, forcing the establishment to move out of its longtime Broadway location and into the Chapel Square Mall to make room for the new Barnes and Noble Yale Bookstore.
In January 1999, Wallace’s, based in Lexington, Ky., was hired to manage the foundering Co-op and signed a 10-year contract with the establishment. But because of the Co-op’s location and competition from the Yale Bookstore, Wallace’s began to lose money on the Co-op.
“The problem was, and nobody would doubt this, they were not able to make a go at it,” Co-op attorney Dean Baker said. “They lost in the high six figures within a year. Basically, they were throwing good money after bad, and they could’ve lost a million dollars easily, and that becomes a significant amount when you lose it year after year.”
Prior to taking over the Co-op, Wallace’s College Bookstores had competed successfully with other Barnes and Nobles in other markets. However, this was a different situation for the firm because it ventured into the Co-op’s department-store model, even though Wallace’s specialized in book sales.
Despite the financial problems Wallace’s faced while operating the Co-op, Baker said he did not feel misled by the company.
“The Yale Co-op was having financial difficulties, and it was looking for suitors,” Baker said. “If it weren’t for Wallace’s, the Yale Co-op would’ve closed two to three years earlier than it did.”
Tim Prather, Wallace’s vice president for marketing and development, said he could not disclose any information about the company’s financial situation during the time Wallace’s was running the Co-op.
Baker said he believes Wallace’s was not in financial turmoil while it was managing the Co-op.
“I would certainly doubt that a company with extraordinary financial distress would’ve engaged in a relationship with the Yale Co-op,” Baker said.
After backing out of the contract in September of last year, Wallace’s has been forced to shut down many of its branches.
According to the Lexington Herald-Leader, the bookstore received permission from U.S. Bankruptcy Judge William S. Howard on April 3 to cancel operations at seven more colleges, including Cerritos College in Norwalk, Calif., and Dillard University in New Orleans, La. These cancellations will leave Wallace’s with 81 stores at 50 colleges.
Many institutions complained that Wallace Wilkinson, chairman of Wallace’s, did not repay many of his creditors. Preliminary filings indicate that Wilkinson owes more than $339 million, the Herald-Leader reported.
Gregory Schaaf, the attorney for Wallace’s creditors, said it was too early to start canceling contracts.
“It’s like people jumping up and getting in the lifeboats early before we see if we can keep the ship afloat,” Schaaf told the Herald-Leader.