Add retail chain Conn’s Inc. to the home retailers’ bankruptcy graveyard.
Home Retailer Conn's To Close 71 Doors Amid Chapter 11 Speculation
The Woodlands, Tex.-based Conn’s on Tuesday filed its Chapter 11 petition for bankruptcy court protection as it conducts an orderly winding-down of operations. The filing in a Texas bankruptcy court will see the shut-down of its Conn’s banner, as well as that of nameplate W.S. Badcock, which the chain acquired from Franchise Group Inc. this past December. While the filing will see the stores liquidate their inventories, the banners are intellectual property assets and there’s a chance they could follow the recent trend where buyers acquire the names to operate as an online operation. The most recent example is the acquisition of the Bed Bath & Beyond banner that was bought by Overstock.com . Overstock has since renamed its corporate entity Beyond Inc.
Home retailers have been particularly hard hit by consumer spending changes, as well as higher shipping costs for bulky items such as furniture for both imports and deliveries to customers in the wake of the COVID-19 pandemic. The sector has carried the highest default risk across retail since 2021, according to data from S&P Global Market Intelligence. Last year saw the mega filings of Bed Bath & Beyond and the second Chapter 11 filing—the so-called Chapter 22 —of Tuesday Morning.
“The company’s continues growth and success has faced significant headwinds,” Conn’s CEO Norman L. Miller said in a court document.
He explained that those headwinds include drastic shifts in consumer behavior due to macro-economic trends including spending patterns associated with federal government stimulus connected with COVID, market-wide interest rate pressures, inflation and integration delays and increased costs associated with its W.S. Bradcock acquisition. Miller said the company completed the Bradcock merger with the intention to strengthen and widen Conn’s existing operations and customer reach, as well as benefit from “significant synergies around credit, merchandise, logistics and more.” He also noted that while certain synergies were realized, the “full realization of all cost and revenue synergies is estimated to take approximately 12 to 18 months.”
“The resulting slowdown in the company’s growth has placed a strain on [its] sales and liquidity position,” Miller said. He also said that the increased cost of capital and the impact of higher interest rates contributed to a reduction in liquidity. In the court document, Miller said interest rate expense was $25.7 million for the year ending Jan. 31, 2021, but jumped to $81.7 million for the year ending Jan. 31, 2024, due to increased rate pressures.
Despite cost-cutting initiatives and negotiated amendments to existing debt facilities, “none of those alternatives provide the necessary liquidity and time for the company to restructure its business and develop an actionable turnaround strategy,” the CEO said.
Conn’s began operations in 1890 as a heating and plumbing business that opened a home appliance storefront in 1937 in Beaumont, Tex., which grew into a national retailer of home goods with more than 533 corporate and dealer stores across 15 states, in addition to its online site. The 134-year-old business acquired the Badcock chain in December, but faced difficulties in merging the two operations. Bradcock was founded in 1904 in Mulberry, Fla. Before the merger, it operated 64 company-owned locations and had 310 dealer-owned stores.
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Rumblings had surfaced that the chain was distressed and could file a Chapter 11 petition. The chain said on Tuesday that it was planning to close 71 Conn’s stores , and then later determined a full-chain liquidation was required. The company said in a court filing that it operates 244 location, with the balance dealer-operated. The shut-down of operations will result in the loss of 3,800 jobs across 15 states. The discount chain, which targets low-income consumers, also offered in-house credit programs to customers who otherwise wouldn’t have access to other means of financing.
In addition to the store operations, Conn’s also has a number of regional distribution centers and small cross-dock facilities that enable quick delivery, including next-day delivery in many markets.
Miller said the company buys inventory from vendors in the U.S. and internationally, with orders placed based on actual and forecasted consumer demand. The company estimated that it has $200 million owed in trade debt and other general unsecured creditors. The Chapter 11 petition listed total assets of $2.44 billion and total liabilities of $1.95 billion.
The wind-down of operations is expected to be completed by the end of October.
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