Multi-store retail Chapter 11 bankruptcy cases generate higher returns when retail inventory is monetized through a combined location pare-back sale and promotional sale.
Hardware Store was a 2-location, family-owned hardware business located in Philadelphia, PA. Having started in 1951, the business was an institution with the 3rd generation of the family involved. In 2018, the family decided to take a risk and expand the operation to a second location and lease a 25,000+ sqft. store in a suburb of Philadelphia. Unfortunately, the rent was too expensive for their sales trajectory, they had taken on too much vendor debt to get the store open, and they had taken on a high-interest inventory loan that created cash flow compression and debt-service challenges. After several missed rent payments on the new location, the landlord bolted the door. The owners turned to their attorney who assisted in filing Chapter 11 bankruptcy with the goal of shuttering one location and promoting the main location to generate cash flow and service the debt. Their attorney was referred to Fortis Business Advisors to assist in developing a strategic marketing plan for the liquidation and promotion.
Inventory was the sellable asset with an estimated total of $985,000 spread between both stores and the warehouse. The location for the store closing sale (primary) had $560,000 and the main location (main) had $285,000. The primary location took precedence due to the volume of inventory, the newer condition of the inventory, the neighborhood was more suitable for retail sales, and the timeframe to exit the store. Upon completion of setup for both locations, Fortis immediately launched a high-impact marketing program that included website development, a market canvasing mailer, digital ads and geofencing, radio spots, sign spinners, mass email, and social media.
128% Sales-to-Inventory Cost (primary); 123.4% Sales-to-Inventory Cost (main)
Due to the success of the sales, and the volume of merchandise to be sold, the sale extended 12 weeks
Inventory was sold to the bare walls at the primary location
Upon completion of the store closing sale, the professionals involved in the case discovered that the owners had utilized surplus cash to fulfill special orders at both locations after having been instructed to limit disbursements. Because this created a shortage in cash, the business was unable to exit the bankruptcy, and attention had to shift to the main location, which only represented 33% of the total business. In this phase, Fortis was brought in to convert the promotional sale to a store closing sale. To give better assistance in reaching the goal, Fortis dug deeper into the Capital Structure and Cash utilization. Also, Fortis quantified department representation to revenue, and took a deeper dive into the market conditions in the area surrounding the store to identify more accurate and achievable cash expectations.
Additional $502,000 generated in sales
By Week 2, Fortis recognized that the sales volume and volume of remaining inventory presented a challenge with achieving a successful outcome
Fortis exhausted several avenues to help the client exit the case, including SBA financing and real estate financing