Rockport survived a steep drop in sales in 2020 during the first year of the pandemic, but an inventory glut to capitalize on the return to working in offices post-pandemic failed to deliver and led to the iconic footwear company’s second bankruptcy in five years, according to court papers.
As reported by SGB Media, Rockport, known for its comfort footwear, filed Chapter 11 bankruptcy in a U.S. District Court in Delaware on June 15, 2023, with plans to pursue an auction and sale.
According to an affidavit filed by Joseph Marchese, a partner at PKF Clear Thinking and chief restructuring officer at The Rockport Company, wrote that the first bankruptcy, filed in May 2018, came three years after Adidas sold Rockport to a joint venture between Berkshire Hathaway and New Balance. Following the Adidas sale, Rockport “suffered from a costly separation from Adidas and was never able to find its financial footing.”
In 2017, Berkshire Hathaway and New Balance turned over their interest in Rockport to a group of secured lenders. In bankruptcy proceedings, the business was acquired by Charlesbank Capital Partners in partnership with management, led by recently-appointed CEO Gregg Ribatt, in August 2018.
Marchese wrote that following the 2018 bankruptcy sale, Rockport sought to reposition itself based on four strategic vectors:
- capitalizing on its core market;
- deepening casual product offerings;
- attracting younger consumers; and
- simplifying its business model to drive efficiencies and high-quality growth
In line with objectives, Rockport closed its U.S. stores, wound down non-core international operations, shifted to a distributor model, and focused on building its online presence through its “e-tail” site and wholesale e-commerce channels.
By 2020, Marchese said that despite the restructuring efforts, continued high overhead costs and weakened demand for Rockport’s core products due to, among other factors, the pandemic, led to continued struggles. In 2020, sales declined 41.4 percent to $162 million from $275 million in 2019.
Marchese said that due to a combination of a temporary reduction in its minimum borrowing availability under senior loan facilities and the support of the ownership group through subordinated notes, “Rockport survived the COVID-19 pandemic and executed on multiple aspects of its business strategy.”
In 2022 Rockport made progress with its online growth plans. E-commerce sales from Rockport.com reached $34 million, up 23 percent year-over-year, and e-tail, including wholesale sales from Amazon.com and Zappos.com as well as other third-party online sites, totaled $42 million, up 44 percent; however, sales in 2022 remained 31.2 percent below pre-pandemic 2019 levels.
Marchese said in the affidavit that despite the progress in online sales, Rockport was “ultimately unable to align expenses with their reduced revenue levels and, as a result, were left with an inadequate liquidity cushion to survive further economic challenges.”
Marchese also said that in late spring 2022, Rockport had significantly increased its inventory purchases for Fall/Winter 2022 in anticipation of a “back-to-work” increase in sales. He added, “Unfortunately, that sales bump never materialized. Instead, in response to inflationary pressures and weakening economic conditions, the debtors’ wholesale customers and distributors canceled or materially cut back on orders, leaving Rockport holding significant excess inventory; this, combined with supply chain challenges and higher interest rates, has made it increasingly difficult for the debtors to service their funded debt obligations and satisfy trade payables in a sustainable manner.”
On September 22, 2022, following certain defaults under its prepetition senior credit line, Rockport engaged Stifel, Nicolaus & Company to conduct a marketing process and explore opportunities for strategic transactions, including selling the business as a going concern.
Between September 2022 and April 2023, Stifel ran an extensive marketing and sales process, contacting 13 strategic buyers and engaging in negotiations and discussions regarding the form of a potential strategic transaction. Ultimately, Rockport received formal indications of interest from two parties and signed indications of interest (IOI) with a potential purchaser and granted that party exclusivity through April 7, 2023. However, the initial potential purchaser and Rockport could not agree on the final terms of an acquisition before the exclusivity period expired.
After terminating exclusivity with the initial potential purchaser, Stifel relaunched its outreach efforts on April 10 and contacted 19 potential strategic buyers; 11 were active in the prior marketing process, and 3 were potential financial buyers. Of these 22 parties, 9 signed an NDA (non-disclosure agreement), 5 participated in management calls, and 3 submitted formal written proposals.
Rockport signed a non-binding letter of intent to sell some of its assets in May. The company and its unidentified counterparty remained in negotiations to enter a stalking horse asset purchase agreement.
The company said it anticipates operating “business as usual” during the Chapter 11 process, and customers will see no disruption in service or product quality.
Subject to court approval, Rockport will operate using debtor-in-possession (DIP) financing, providing the company with sufficient liquidity to continue operations during the Chapter 11 case and related sale process.
Since November 2022, Rockport engaged Clear Thinking as its financial advisor. Potter Anderson & Corroon LLP is serving as legal advisors. Ribatt has resigned as CEO but will be available for a transitional period.
Rockport operates internationally and said it has 30 distributor partners in over 60 countries with more than 1,100 points of sale. The company sources its inventory from manufacturers in China, India, Bangladesh, Vietnam, and Brazil. The company reported that together, these overseas partners manufactured over 4.8 million pairs of shoes in 2022.
