Zany Brainy Files for Chapter 11 Bankruptcy

Zany Brainy, the children's multimedia retailer, has filed for Chapter 11 bankruptcy. The 10-year-old company has struggled since acquiring rival Noodle Kidoodle for $40 million in May 2000. Earlier this year, the company defaulted on a $115-million loan from its bank, First Union Corp., and hired the firm of William Blair & Company to review its options.

Zany Brainy president and CEO Tom Vellios said rapid growth, including the integration of the 60 Noodle Kidoodle stores and the opening of 27 new Zany Brainy stores, "presented significant operational challenges." This, as well as a slow Christmas season, contributed to a cash drain and strain on liquidity, resulting in the need to file for Chapter 11, Vellios explained. Also contributing to the retailer's cash problem was the launch of the Web store, www.zanybrainy.com, which the company started with New York's Online Retail Partners. After a disappointing beginning, Zany Brainy assumed full ownership of the site in December 2000.

To keep the stores open, Zany Brainy has received a commitment for $155-million debtor-in-possession financing from Wells Fargo Retail Finance LLP, which was approved by the court last week. Rich Tauberman, spokesman for Zany Brainy, told PW, "The key message here is that the stores are open and stock is on the shelves. There were a couple of folks who weren't shipping to us, and we've been working with the creditors to resolve the situation."

In the bankruptcy filing, the company did not disclose which, if any, of its 187 stores will close. Tauberman said, "The company is going to be doing an exhaustive store-by-store analysis. We hope that by renegotiating leases, we can bring underperforming stores up to grade."

Zany Brainy's top creditor is Learning Curve Toys, which it owes $3.0 million. The only publisher among the top creditors is Klutz, which is owed $851,712. Overall, the company listed total assets of $201 million and total liabilities of $131 million.