Bankruptcy protection is sought by Paper Zone

Paper Zone has filed for Chapter 11 bankruptcy protection as it reorganizes to reflect its original format.

The specialty-paper retailer plans to continue operating 10 Paper Zone stores — seven in Washington and three in Oregon — while shuttering a string of scrapbooking retail sites it ran under the Memories brand name.

The Seattle company has $5.46 million in debt, according to legal filings this week. The largest secured creditor listed is the Seattle Foundation, which received a contribution pledge of $224,050.

Paper Zone reported $21.9 million in sales last fiscal year, a 38.6 percent jump from the year before. The company said it has assets worth $3.2 million.

"We have a great name in the area," said Jim Nystrom, Paper Zone's general merchandise manager. "We really just want to go back to who we are and who we're good at being."

Paper Zone opened in 1992 as an outlet store for West Coast Paper, a longtime Pacific Northwest paper distributor. The retailer was acquired a decade later by the Seattle-based private-investment firm Intracorp Capital.

While the company was profitable at the time, with rising same-store sales — a key measure of performance for stores open a year or more — the acquisition gave it the funding necessary to initiate a bolder expansion plan: 50 stores in five years.

In 2005, Paper Zone acquired 16 scrapbooking stores from Salt Lake City-based Memories & More, with plans to rebrand the stores under the Paper Zone name over time.

The purchase doubled its store count, giving it a presence in new markets, including Denver, Salt Lake City and Atlanta.

"(Memories) knew they couldn't expand without more capital and we were looking to expand," Nystrom said of the purchase.

But Paper Zone had significant problems converting the Memories stores to the same information-technology system.

"As a result store inventories were depressed, resulting in lower than expected sales," the filing said.

The company had other problems integrating the two brands; the audiences turned out to be far different, making it difficult to rebrand the locations under the Paper Zone name.

Nystrom said it would close its remaining Memories stores by month's end and focus on returning the company to profitability.

Monica Soto Ouchi: 206-515-5632 or msoto@seattletimes.com