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Pillowtex: Hounded Beyond the Grave

Retailers Sought Last Chargeback Dollars Even after Company's Demise

New York — As if to prove that absolutely no one, not even the dead and buried, are immune from retailers grasping after chargeback collars, Target, Marshall Field's and Mervyns tried to extract a combined $2.4 million in chargebacks from Pillowtex Corp., a company that had turned out the lights, shut its doors and ceased to exist.

But that didn't stop the three retailers, once siblings under the Target Corp. umbrella, from trying to squeeze the last drop of chargeback dollars out of a company that had been put in its grave at least in part by chargeback abuse, according to former ceo Chuck Hansen (see story on page 11). Only days before the remains of Pillowtex were to be disposed of in a liquidation sale in November 2003, the retailers asked a bankruptcy judge for the cash, citing the “considerable hardship” the “unscheduled” collapse of the textiles giant had caused them.

In a filing with the U.S. Bankruptcy Court for the District of Delaware, Mervyns said it “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.” Additionally, the court papers said, Target and Mervyns “will be forced to negotiate with new vendors from a weakened bargaining position.”

Target and Mervyns also claimed they “will suffer from a disruption to inventory flow as they clearance the home goods to make room for new home design merchandise. Target and Mervyns are damaged from these disruptions and expenses and having to incur additional significant expenses of closing out the discontinued home goods.”

As if that weren't enough, the filing claimed the retailers' image might be tarnished by problems arising from Pillowtex's demise. The court papers claim “the unavailability of the home goods creates an impression with guests that Target and Mervyns are unable to meet all of their guests' shopping needs. The unavailability of the home goods may also cause the guests of Target and Mervyns to shop elsewhere.”

The Pillowtex response? It claimed it was owed more than $9 million in unpaid current and past due invoices from Target Corp., Mervyns and, separately, May Department Stores Co. Pillowtex ended up suing Target, saying it was owed $2.4 million in outstanding invoices, some of them up to a year old. In a suit against May, Pillowtex said it was owed $6.6 million from Famous Barr, Filene's, Hecht's, Foley's and Robinson May, on past due amounts, some of them almost two years old.

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