Paper Source Retail Chain Files for Chapter 11 Bankruptcy Protection, Will Close 11 Stores

Paper Source, which sells greeting cards, paper goods and custom invitations, filed for Chapter 11 bankruptcy protection on Tuesday after sales plummeted due to the pandemic.

The move marks a reversal for a company that was expanding as recently as a year ago, having acquired some from its liquidating rival Papyrus right before COVID-19 hit.

It also marks another setback for the greeting card industry, which has been slumping in recent years amid the rise of digital competition.

Chicago-based Paper Source, which has about 1,700 employees, plans to close at least 11 of its 158 stores while attempting to secure rent concessions and evaluating other locations, according to a court filing.

Before COVID-19, the company "had been enjoying rapid expansion and sustained sales growth, and had recently undertaken a significant acquisition," chief financial officer Ronald Kruczynski said in a court filing. "However, as with many other retail brands, (Paper Source has) sustained deep damage to their finances and operations as a result of the ongoing COVID-19 pandemic."

The company said it had reached a tentative deal to sell its assets as an operational business to MidCap Funding Investment XI LLC, an affiliate of MidCap Financial Trust, or a higher bidder if one emerges.

Founded by Susan Lindstrom in 1983 as a single store selling handcrafted paper, Paper Source had grown into 27 locations by the time she sold a majority stake to private equity firm Brentwood Associates.

After that deal, Paper Source expanded quickly, reaching 51 locations by 2011.

CEO Winnie Park told USA TODAY in early 2019 that the company had 128 locations after adding 50 over the previous five years.

“Part of the magic of what we bring to market is a selection that has been curated that is totally unique,” Park said at the time. “I would say that actually, nearly half our customer base is millennials, and they definitively buy greeting cards.”

In March 2020, the company completed the acquisition of 27 stores from Papyrus, bringing its footprint to 161 locations.

But the pandemic erupted shortly thereafter, forcing Paper Source to close all of its stores for at least two months.

With its stores shuttered, the company missed out on sales of cards for Easter, Mother's Day and many summer weddings. Closed stores reopened later in the spring or summer, but the retailer had sustained significant damage.

In 2020, sales totaled about $104 million, down from 2019's $153 million, according to court records.

To offset the declining revenue, Paper Source tried to get rent concessions from landlords in the early going of the pandemic but didn't have enough success.

"Many landlords made no concessions," Kruczynski said.

The bright side was that the company's online business grew from 10% of overall sales in 2019 to 24% in 2020.