Footstar has reportedly reached an agreement with Nike over a dispute that arose over Nike’s attempt to cut the retailer’s discount terms. A report in a local paper quoted a Footstar spokesperson that said, “The terms are confidential, and the proceedings have been suspended for now” and that “Nike is shipping new product.”

The dispute became public last week when Footstar filed a motion in Bankruptcy Court requesting a temporary restraining order against Nike to keep the company from cutting the discount level on its shipments to Footstar. Footstar also filed a motion to hold Nike in civil contempt for violating the automatic stay during the Chapter 11 process, a motion that also asked for compensatory and punitive damages.

Footstar had charged that Nike moved to cut the retailer’s discount on product that was sold to Footstar. Footstar said that Nike’s reasoning was that Footstar failed to meet the limits on cancellation percentages.

Footstar CEO Dale Hilpert said he participated in a call with Nike management on March 10 and was advised that Nike was changing the terms due to Footstar’s failure to pay $8 million in pre-petition payables. Hilpert said in his affidavit that Nike had advised Footstar five days prior to its bankruptcy filing that it would cut the terms if the amount was not paid.

Hilpert said in his affidavit that he advised Nike that Footstar’s Athletic business would likely be forced into liquidation as a result of the revocation of the discount. Hilpert alleged that the Nike officials said they were “willing to live with that risk”.

Footstar also had portions of Hilpert’s affidavit sealed so the exact discount amount is not indicated, but one motion did indicate that the discount revocation would result in “concurrent margin erosion of approximately 10%” and the “resulting decline in earnings would trigger events of default under the covenants” of Footstar’s DIP facility and cause the loss of 8,000 jobs.


>>> Oh, this keeps getting better. We’re sure that the two will have a very warm and fuzzy relationship if and when Footstar emerges as a reorganized entity…

>>> Let see, Nike told Footstar on February 27 that it was pulling their discount. Nike represents about 70% of the Footstar Athletic business. Footstar files for Chapter 11 on March 3. Nike informs Footstar that it was going to do what it said it was going to do. Footstar cries foul. Did Nike know they were filing or did Footstar file to preempt a Nike action? Don’t mean to sound like Oliver Stone, but inquiring minds…