In an affidavit urging the U.S. Bankruptcy Court District Of Minnesota to support its financing needs, Gander Mountain indicated that it has accumulated “substantial operating losses over the past two fiscal years” as a result of many of the challenges faced by other chains entering bankruptcy proceedings over the last year.

In the court filing, Tim Becker, who was appointed the retailer’s chief restructuring officer on January 9, cited “shifting sales from traditional brick and mortar retailers to a host of online resellers,” as well as “competition from a combination of other sporting goods retailers and competition from certain of their own largest apparel and softlines vendors, who have launched strategies to open their own networks of brick and mortar retail stores that typically feature a more extensive and exclusive selection of the vendor’s branded apparel at more attractive prices.”

“Moreover” he added, “in response to these competitive pressures, many such retailers have adopted persistent and aggressive promotional selling strategies that deeply discount the prices for a wide range of products, forcing other retailers to match such promotional activity in order to retain customer traffic, thus further diluting the profitability of the debtors’ sales. The negative impact of these competitive forces – which in one shape or another are impacting nearly all brick and mortar retailers – can be seen in the unprecedented number of bankruptcy filings by retailers over the past 24 months.”

Becker penned the affidavit to garner court approval for Gander Mountain to use cash collateral and enter into a post-petition financing arrangement. The company is seeking approval for a debtor-in-possession (DIP) financing facility for up to $425 million underwritten by Wells Fargo.

The financing and cash will support an expedited sales process for the majority of its assets and the liquidation of a select group of underperforming stores. In its initial filing, Gander Mountain said it was seeking permission to close 32 of its 160 stores.

Becker, who is an EVP of Lighthouse Management Group, said approval of the motions will help improve employee morale and supplier relationships while providing time to support ongoing discussions with interested parties on a quick sale that’s being challenged by a difficult retail environment.

“Faced with the challenging retail environment, the debtors commenced these cases with the goal of selling a substantial portion of their assets on a going concern basis and liquidating other assets through a series of ‘store closing’ sales on a very accelerated basis – approximately 60 days for the going concern sales,” stated Becker.

He said Gander Mountain “must act quickly to preserve the value of a core portion of the debtors’ business that operates at a sufficient level to enable a successful sale process, preserve jobs, vendor and landlord relationships and emergence from bankruptcy. The debtors must accomplish this in an environment of unprecedented volatility in retail, which has created an extremely challenging operating environment, adversely affecting employee morale and the attractiveness of a career in retail generally, while at the same time maximizing proceeds from ‘store closing’ sales to be conducted at a time when the market has seen unprecedented number of recently completed or planned liquidation sales of similar sporting goods, apparel, and footwear retailers.”

He noted that Houlihan Lokey was engaged by Gander Mountain in late January to help explore potential offers from strategic and financial investors as part of the anticipated bankruptcy auction.

“Several strategic and financial investors have signed non-disclosure agreements, begun their due diligence review of the information provided in the virtual data room established by the company and its advisors, and have participated in presentations by the company’s senior management,” wrote Becker. “These due diligence reviews are on-going and the debtors expect to have a stalking horse in the coming days.”

The filing also noted that the company is seeking to hire Hilco Real Estate to help analyze its retail leases and develop a series of cost savings and lease restructuring efforts.

The affidavit didn’t attribute the filing to Gander Mountain’s aggressive expansion. The company has added approximately 50 new stores over the past five years. However, its heavy debt load has “undermined” its performance, and the company has taken several steps over the last two years to resolve liquidity challenges over the last year.

The steps include raising $10 million in proceeds from the sale of equity securities to the company’s lead shareholders. Gander Mountain was taken private in 2010 by Gratco, a holding company controlled by Gander Mountain Chairman and Chief Executive David Pratt, and Holiday Stationstores, a gas-station retail operation controlled by Minnesota’s Erickson family.

Amendments have also been made under its loan to expand its borrowing capacity. As of the filing, the company had $4254.5 million secured debt.

Gander Mountain has also taken several actions to further reduce its operating expenses, including centralizing purchasing activities, improving efficiencies at its distribution centers, and eliminating positions at its corporate headquarters through two reductions-in-force in December 2015 and 2016. Increased promotional activities were taken in the summer of 2016 to clear slowing moving inventory. In fall 2016, a sale of the Overton’s web store and catalog business was explored, but offers came in too low.

Other information included in the filing:

  • Sales in the year ended January 28 were $1.32 billion. Of that amount, retail accounted for $1.14 billion in sales and direct (online and catalog) totaled approximately $185 million.
  • Hunting/shooting made up its largest merchandise category in 2016, representing 53.5 percent of sales. That’s followed by apparel, 16.6 percent; fishing and marine accessories, 16.1 percent; camping, paddlesports and backyard equipment, 7.3 percent; and footwear, 6.5 percent.
  • Gander Mountain employs approximately 6,500 employees on a full and part time basis. In 2016, it paid $190.5 million in salaries and benefits to its employees, contractors and temporary workers
  • As of January 28, consolidated inventory was listed on the debtors’ balance sheet at a value of $583 million.

Photo courtesy Gander Mountain