The Northwest Company LLC, a maker of league licensed blankets, packs and other items, filed for bankruptcy protection in the Southern District of New York.
The filing listed assets between $10 million and $50 million. Liabilities were listed between $50 million and $100 million.
In an affidavit filed in court, Ross Auerbach, president and CEO, said “a series of unfortunate events that started several years ago led to significant liquidity issues in the debtors’ business.”
In 2017, Northwest acquired the sports-branded inventory of Concept One, then a leading manufacturer of licensed backpacks and accessories sold primarily through Walmart. Challenges with the acquired inventory were discovered shortly after the transaction closed. The level of profitability of sales through Walmart was far lower than expected during pre-closing diligence “due to inaccurate representations by Concept One,” according to court papers.
More significantly, Auerbach said quality control issues with Concept One products resulted in lost sales opportunities. Northwest was unable to assimilate the inventory into their core business as they had projected, and sales were “far below what was expected.” In the meantime, licenses associated with Concept One’s inventory required Northwest to pay large minimum guarantees to the licensors. Wrote Auerbach, “The overall disappointing sales volume of this inventory drained cash flow from the debtors’ core business.”
In addition, quality control issues related to certain products supplied by Ashford Textiles USA LLC, a key vendor of products to Northwest, caused Walmart to first reduce, then cancel, Northwest’s participation in its juvenile bedding modular program. Such programs are a key source of sales for Northwest. The loss placed even further strain on Northwest’s liquidity.
A $10,000 unsecured promissory note held by Ashford Textiles is under dispute in the bankruptcy.
Outside of matters related to Concept One and Ashford Textiles, Auerbach noted that in 2018, the U.S. Government imposed a tariff of 25 percent on bags and backpacks imported from China. Auerbach said, “This tariff was in addition to the already high 17.6 percent duty imposed on that category of goods, and decreased both demand for the goods and the margins on their sale.”
Finally, Auerbach said the bankruptcy filing was in part due to Northwest’s decline in sales in recent years in the wake of the decline in the retail sector generally. Wrote Auerbach, “The current public health crisis, while not the reason for the debtors’ bankruptcy, has exacerbated the debtors’ financial condition. As a result of these factors, the debtors took the necessary step of commencing these cases preserve and maximize the value of their assets.”
The largest unsecured creditor on the top-20 unsecured creditor’s list was Ashford Textiles, Ltd. USA, $25.7 million. The claim is disputed.
Among licensed partners, those landing on the company’s top-twenty unsecured creditors’ list were NFL Properties, owed $3.37 million; Major League Baseball, $650,000; National Hockey League, $451,319; Warner Bros. Consumer Products, $341,083; and Marvel, $276,691. IMG Models LLC, the modeling agency, is owed $1 million.
Other unsecured creditors include Suzhou Megatex Import & Export, holding an unsecured claim of $5.15 million; Heiwei USA LLC, C/O Rosenthal & Rosenthal, owed $1.78 million; Standard Fiber, $1.43 million; Lianyungang Feiyan Blankets, $1.11 million; Suzhou Liande Import & Export, $641,072; Unifi Manufacturing, $525,016; and Refine International Hong Kong, $355,907.
Logo courtesy The Northwest Company