Debtors and Creditors benefit from the use of "Pop-Up" Liquidations to generate higher returns from the monetization of inventory and assets in Chapter 11 Bankruptcy cases.
On July 15, 2021, a motion was granted from the Eastern District of Pennsylvania Bankruptcy Court that secured precedence for the use of "Pop-Up" Liquidations as an inventory monetization strategy in Chapter 11 Bankruptcy.
An active client of Fortis Business Advisors, Hardware Store, was facing considerable challenges with exiting Chapter 11 bankruptcy. What was originally two stores had been pared back to one, and because not enough cash had been generated, Fortis had converted the second location from a promotion to a store closing sale. Early in the process, knowing that this location was the lower volume store, Fortis reviewed sale returns and recognized that to sell the volume of inventory present, accounting for special orders, would require up to 50 weeks of sales at the current sale volume. This would be unacceptable to the creditors as the case had extended longer than scheduled already. Likewise, after careful analysis, Fortis recognized that despite Hardware Store’s longevity, the market around the store had changed considerably, giving way to the decline in sales. To ameliorate the situation, Fortis proposed to the owners and professional advisors expanding the square footage of sellable space through two “Pop-Up” Liquidations set up in higher demand markets. After submitting detailed cash flow and income statement projections, projected cash availability from all locations, and a Capital Structure detailing cash distributions aligning with the approved plan, the court reviewed the strategy and approved the motion.
With Fortis financing the “Pop-Up” sales, the court approved a senior secured DIP loan to cover the initial operating expenses to get the stores off the ground. Fortis identified two locations in different suburbs of Philadelphia meeting considerably higher demand parameters than the market at the main location. Once the spaces were secured with business licenses, under the guidance of Fortis, Hardware Store proceeded to comb through their store shelves and warehouses to secure high-demand items suitable for sale in the “Pop-Up” locations. While the stores were being merchandised, Fortis developed a website (www.anvilhardwaresale.com) specific to the stores and executed a high-impact marketing program driven by social media, email, and guerilla marketing campaigns in the area.
22% profit margin vs. 2.9% average hardware store margin
Categories of merchandise sold out, including Grills and Collectible Trains
Multiple sale days that exceeded original Hardware Store location