Retail Concepts Inc., the Houston-based operator of Sun & Ski Sports stores, emerged from Chapter 11 bankruptcy protection on May 19.
A new company, Sun & Ski Sports Inc., formed by Retail Concepts executives Barry Goldware (CEO), Frank Stanley (COO) and Steve Rath (executive vice president), provided $352,000 of new capital to Retail Concepts Inc. In addition, Whitehall Retail Finance agreed to provide a three-year commitment to a $12 million asset-based line of credit.
Following an unsuccessful attempt to avoid bankruptcy protection (see our July 29, 2002, story "Retail Concepts strives to stave off bankruptcy filing") a group of Retail Concepts' creditors, including Benetton Sportsystem USA, Cannondale Corp., Columbia Sportswear, Giant Bicycle, K2, Raleigh America, Marker USA, Salomon North America, Terramar Sports, The North Face, Trek Bicycle and Watermark, filed a Chapter 7, involuntary bankruptcy petition against Retail Concepts.
Retail Concepts sought to convert that filing to a Chapter 11 bankruptcy protection and was successful, with the court naming Trek, Salomon, K2, Giant, Raleigh, Cannondale, The North Face, Watermark and Benetton as members of the Creditors' Committee on Oct. 24, 2002.
A first plan to exit Chapter 11 was filed on Feb. 18, 2003, but following much worse-than-expected March sales that netted a loss of $270,000 following a loss of $105,000 in February, Retail Concepts filed an amended plan on April 3.
"We had to file an amended plan because sales came in so far below projections in large part because of the war, reduced travel and a significant reduction in consumer confidence," Rath told SNEWS. "We traditionally rely on a very strong spring break ski business that never materialized."
The amended plan was finally accepted by the court and approved by a majority of the creditors leading to Retail Concepts being able to exit bankruptcy.
Even though Retail Concepts is out of bankruptcy, the Creditors' Committee is watching closely -- almost like Big Brother. Under the terms of the exit agreement, Retail Concepts cannot merge or consolidate with any other company, nor can it, prior to June 1, 2005, purchase or acquire any interest in property except to renew or modify an existing lease. After 2005, it is prohibited from entering into more than three new leases per year without the consent of the Creditors' Committee.
The next few months won't be easy for Retail Concepts as the company heads into its traditionally leanest months -- only June sales crept over the $3 million mark for the company in 2002 -- but Rath is confident Retail Concepts is on the right track.
"April is not where we wanted it to be, but May is following a pattern of recovery that we are comfortable with and we believe we'll be back on line where we need to be shortly," said Rath.
No doubt the company is still working to bring new inventory in now that financing is in place, and blow old inventory out. As of January 2003, court documents revealed an estimate of old inventory at 20 percent of the total inventory on hand -- way too high even for more liberal analysts.
The company is leaner, by eight stores, operating now at a 16-store level that Rath tells us represents the meat of the company's best-performing retail locations. Eight of the company's stores are in Texas, two in Oklahoma, and one each in Missouri, Ohio, Tennessee, Georgia, North Carolina and Florida.
The company has trimmed staff too, down to 534 employees, including 29 executives and administrators, 11 distribution center employees, 37 store managers, and 457 sales associates.
Rath told SNEWS that the company has also instituted merchandising controls and planning systems that will prevent it from getting into a situation of too much inventory by controlling open-to-buy levels and increasing turnover ratios to optimum levels for maximum profitability.
"Retail 101 is all it is," Rath told SNEWS.
Rath also realizes all too well that for Retail Concepts to really turn the corner, he has to find a way for the company to not be so reliant on December and March, the two months that generate as much as 36 percent of the company's business due to ski sales. He told SNEWS that Retail Concepts is working very hard to expand its strength in bicycle, watersports and outdoor sales to bolster the sales numbers for spring and summer.
SNEWS View: What brought Retail Concepts to bankruptcy for the second time in just over a decade? It doesn't take too brilliant a mind to see that the company's expansion plan was flawed and much, much too aggressive. Banking on mall landlords' offers to fund build-outs in mall locations, Retail Concepts opened 10 new stores in regional malls from 1999 to 2002. During that time, sales doubled from $35.5 million to $65.2 million. But the writing was on the wall and even though the company turned a modest operating profit in 2001, the end of fiscal year 2002 in March revealed a financial disaster and an operating loss of over $4 million. Over-inventoried and cash poor, the company collapsed. Rath, who joined the company in 2001 after working for 12 years at Oshman's, most recently as the company's executive vice president, appears to be making the right moves for Retail Concepts, and a good thing too, because now he is financially vested in the company's future.
You might think that Retail Concepts' bankruptcy track record would make more than just a few vendors a tad nervous about conducting future business. However, the reality is, Retail Concepts is a significant player for some larger vendors, and as such, even with a checkered history, will remain a retailer most vendors will eagerly play ball with -- while keeping fingers crossed behind their backs that is.
Consider this, YTD numbers through early 2003, gleaned from court documents filed during the bankruptcy proceedings, revealed the following approximate sales at cost by vendors to Retail Concepts: Salomon ($1 million), Burton ($970,000), Columbia ($930,000), K2 ($630,000), The North Face ($570,000), Raleigh ($490,000), Spyder ($480,000), Hot Chilly's ($480,000), Terramar ($365,000), Fisher Bicycles ($300,000) Marmot ($300,000), and Watermark ($300,000). Little wonder vendors see Retail Concepts as a valuable retail partner they hope and pray can keep its head above water this time around.
Retail Concepts is not a unique case. SNEWS has been studying the retail landscape carefully for the last year, and our inside investigations have revealed some very troubling numbers. Though it might seem shocking, another reason vendors are so willing to work so closely with Retail Concepts is that the rest of the retail landscape isn't exactly rosy. Our estimates show that as much as 18 percent to 20 percent of the retail buying power in the outdoor industry is in some sort of financial difficulty right now. Peeling back the layers of the onion even further, we find that where there were once over 200 to 300 retailers on company lists as "no risk" or gold-standard accounts six years ago, today there are typically less than 100 such retailers on anyone's list.