Luke’s Locker, one of the first run specialty chains in the country, has filed for bankruptcy, blaming heightened online competition as well as over-aggressive expansion.
The filing came less than a week after it closed five stores. The company plans to reorganize in the near term around three locations in the Dallas/Fort Worth area as well as two locations in Southlake and Plano that were recently closed. Company president Matt Lucas vowed to reestablish the Luke’s Locker franchise to support the North Texas running community.
“Luke’s Locker is putting into action a plan to restore Luke’s to its former strengths and offer even higher levels of skilled service and superb merchandise to its customers,” said Lucas, the son of the legendary founder, Don Lucas. “Luke’s is confident this is the best decision to position the company for future success.”
The Chapter 11 filing in the U.S. Bankruptcy Court’s Eastern District of Texas listed assets between $1 million and $10 million and liabilities between $1 million and $10 million. Among those with the highest unsecured claims were Nike, Brooks, Asics and Saucony.
The filing joins a long list of retail bankruptcies and store closings last year in the active lifestyle space, led by Sports Authority but also including a number of regional chains such as Sport Chalet, City Sports, Eastern Mountain Sports, Golfsmith and Backwoods.
In an affidavit in bankruptcy court, Lucas blamed online competition as well as bad leases.
“Unfortunately, as is the case with the brick-and-mortar retail business in general, Luke’s Locker suffers from undercutting online competition, though it nevertheless has a fiercely loyal customer base,” Lucas states in the filing. “Luke’s Locker also undertook an aggressive expansion campaign in recent years, opening numerous new stores. This led to the debtors entering into various leases that, with the benefit of hindsight, are more burdensome than the debtors anticipated.”
The filing notes that its Austin and Katy stores have “not been profitable for some time,” in part because both of their rents are too high.
“These problems and others combined to create a serious liquidity crisis,” Lucas added. “Luke’s Locker turns over inventory quickly and with good margins. But without adequate liquidity, Luke’s Locker has had a harder and harder time acquiring inventory. And as Luke’s began to fall behind with its principal vendors, those vendors began demanding cash in advance, further exacerbating the liquidity crisis. In spite of these problems, however, Luke’s Locker still produced $34 million in revenue during the last fiscal year. So the debtors have sought protection under Chapter 11 in order to reorganize their financial affairs and reemerge from bankruptcy free of the burdens that led to their current predicament.”
With the closings, Luke’s Locker’s three remaining stores are located on Montgomery Plaza in Fort Worth, Mockingbird Lane in Dallas and Gaston Avenue in Dallas. The five stores closed on January 20 were in Plano, Southlake, Austin, Houston and The Woodlands. Two other stores in Highland Village and Katy were closed last November. The company filed motions tor eject all of their store leases in the Houston and Austin areas. It plans to reopen its
As discussed in more detail below, the Debtors have filed motions to reject all of their store leases in the Houston and Austin areas and intend to only continue operating their Southlake and Plano to reorganize around five stores.
When Luke’s Locker announced on January 20 plans to close the five locations, it said it expected to reopen those locations within two to three weeks after it re-inventoried those locations. The Facebook message read in part, “We are sorry you have seen our stores out of stock lately.” The bankruptcy filing indicates that Luke’s now plans to reject those leases as part of the bankruptcy process.
About 40 employees were laid off with the closing of the five stores. It continues to have about 40 remaining employees.
At the time the company said it would close the five stores, Lucas provided some other insights into Luke’s Locker’s struggles. He blamed the “over distribution of fitness related products, vendors competing with the retailers who helped build their brands (through retail and direct to consumer marketing), and the online/digital strength of competitors such Amazon (including Zappos.com) and many others.”
He again blamed over-expansion. Lucas said in the statement, “Over the last 6 years, we made some poor decisions about a handful of store locations that have negatively impacted the working capital of the business. The stores that we are temporarily closing are not the problem. Having to shut them down is a byproduct of the poor decisions on other locations.”
A statement posted on the Luke’s Locker Facebook page when the bankruptcy petition was filed on January 24 states, “Luke’s has taken an important step in its plan to rebuild its business by filing a petition for reorganization under Chapter 11 this afternoon. Luke’s is confident that this is the best decision to position the company for future success, and we look forward to continuing our strong relationship with all of our loyal customers, fantastic employees, and valued suppliers.”
The retailer got its start in 1970 in North Texas with commercial real estate attorney and running enthusiast Don Lucas. Because running shoes were not generally available in Dallas at a time when only a handful of running shoes existed, Lucas contacted a company in Oregon, Blue Ribbon Sports, the precursor to Nike, to purchase some shoes for himself and his other Dallas runners. First selling shoes out the trunk of his car and soon his garage, Don Lucas eventually opened the first Luke’s Locker on Oak Lawn in Dallas, naming the store after his dog, Luke.
“His vision to begin the company and his leading-edge merchandising of running product in his stores became the standard for others to follow,” wrote NSGA when it inducted Lucas into the Sporting Goods Hall of Fame in 2012. “He is well known for his desire to work together with his vendors for a win/win relationship and for his efforts to mentor and encourage his employees to become leaders within the industry. Many of them have gone on to become store owners, sales reps, and marketing employees for vendors.”
The locations also provide training programs (running and walking) for their customers, and sponsor and host numerous running and walking events throughout the year, including everything from charitable 5Ks to free weekly social runs from the stores.
In addition to running shoes, Luke’s Locker carries workout gear, sportswear, cross training shoes, track and cross country spikes, tennis shoes and a host of related accessories.
Its closest competitor is RunOn!, which has six locations in the Dallas area. RunOn! has closed two stores since being acquired in 2012 by JackRabbit, the run specialty division of The Finish Line that last week reached a deal to be sold to CriticalPoint Capital LLC, a Los Angeles-based private investment firm. RunTex, which had long served the Austin running community, closed its last door in 2014 but others have arrived to fill some of the void.
Speaking to Dallas News, Terry Schalow, executive director of the Independent Running Retailers Association (IRRA), said 25 of its 450 association member businesses closed their doors last year or struggled to the point that they were on the verge of closing. But Schalow said vendors are taking steps to be more supportive of independent shops given their challenges competing against online sellers.
“Our hope is that Luke’s is able to reopen and operate in some fashion as soon as possible,” said Schalow. “They’ve been such a valuable part of run specialty for so long.”
Photo courtesy Luke’s Locker
