Amigo’s Flooring, once among the fastest growing private companies in the greater San Fernando Valley, has filed for Chapter 11 bankruptcy protection as it downsizes its Los Angeles presence. The company has closed all but three stores and relocated its headquarters offices from Warner Center to its North Hollywood retail location. A creditors’ hearing is scheduled for April 26 at the U.S. Bankruptcy Court in Woodland Hills. Amigo’s, which ranked No. 4 on the Business Journal’s Fastest Growing Private Companies list in 2005 with a one-year growth rate of 130.5 percent, had seen its business slow considerably by 2006, when it ranked No. 35 with a growth rate of 18.09 percent. The slowdown in the real estate sector, coupled with the increased overhead incurred as the company expanded, led to the voluntary bankruptcy petition, officials said. “I veered off my original low-overhead business model and started opening high-overhead stores,” said Michael Cope, president and CEO of Amigo’s, a warehouse-concept flooring retailer. “It will turn around eventually, but I don’t have those reserves.” Amigo’s launched in 2001 in North Hollywood with the idea of providing sharp prices on a much larger selection of carpets, tiles and other flooring than were typically offered by competitors. By carrying so much stock, Amigo’s could buy directly from manufacturers and pass the savings along to its customers. Amigo’s quickly grew to nine locations in Los Angeles and Orange County, with sales of more than $18 million. About 72 people were employed by the company, according to court documents. But based on initial success with its West Covina store, Amigo’s began to depart from its initial concept, entering long and expensive lease agreements. “We saw our fourth location in West Covina was a little more (costly) than our Torrance location, and we thought we’d give it a shot because it was right on the freeway,” Cope said. “When we did phenomenal numbers while the real estate market was still hot, we thought, ‘there is something to location, location, location.’ So when we opened our fifth location on Topanga Boulevard we just kept continuing that process.” As business slowed, Amigo’s was left not only with a huge inventory expense but also with higher overhead. The pricier leases became harder to support, the company said in its court filing, especially since Amigo’s maintains its flooring inventory in-store instead of buying it based on orders received, as many other flooring retailers do. Just prior to filing for bankruptcy protection, Amigo’s closed five stores and laid off about 25 employees, court documents say, keeping only the locations in North Hollywood, Torrance and Orange. (One store had closed earlier.) “The three original low-overhead stores will stay open,” Cope said. “My rent for all three stores is equal to one of the stores I closed, even less.” In its court filings, Amigo’s delineated unsecured debts of just under $2 million, mostly attributable to suppliers, landlords and advertising expenses, and a secured loan for $1.5 million from Bank of America. The documents do not specify assets. Cope said the Chapter 11 proceeding was necessary to extricate the company from the leases on the closed stores. “The only way to get out of those long term leases is with a Chapter 11,” said Cope. “One landlord worked out a favorable deal, but others put the screws to us. That, in combination with the inflexibility of some of our bigger creditors, forced our hand.” Cope said the company has already begun to see “positive cash flow” under the new, smaller structure and he expects that trend to continue. If the company can successfully emerge from bankruptcy, Cope said he hopes to continue to expand outside of the area. “Los Angeles has proven to be a very difficult place to do business,” Cope said. “There are much better conditions outside of Los Angeles.”