By Eric Smith
Advanced Sports Enterprises Inc.—parent company of retail chain Performance Bicycle, wholesale distributor ASI and five bike brands—on Friday announced it is seeking Chapter 11 protection in U.S. Bankruptcy Court.
The company said in a press release that “the move is intended to facilitate the company’s long-term, strategic goals of enhancing profitability and reaffirming its commitment to its employees, vendors and the communities it serves.”
“We’ve taken a lot of steps to right the business over the past 27 months,” Patrick J. Cunnane, ASE’s president and CEO, said in the release. “We have conducted an extensive review of alternatives and believe pursuing a restructuring through Chapter 11 is the best path forward to ensure ASE’s long-term success. We are thankful for the continued support of our dedicated employees, valued customers, vendors and business partners as we navigate this process, and look forward to becoming a stronger company in the coming months as a buyer/investor for the business is found.”
ASE is parent to bicycle brands Fuji, Kestrel, SE, Breezer Bikes and Tuesday Cycles; retail chains Performance Bicycle and Bike Nashbar; and wholesale distributor Advanced Sports International.
The parent company formed in August 2016 when ASI merged with Performance Bicycle, as detailed in an article SGB published that month, Bike Maker’s Acquisition of Performance Bicycle Hints at Future DTC Strategy.
ASI acquired Performance Bicycle on August 16, 2016, for an undisclosed amount (including a $100 million senior-secured loan from Wells Fargo Capital Finance) from North Castle Partners, a private equity firm that had taken a controlling stake in the business in 2007 and helped it grow from 74 locations to 106.
At the same time, ASI formed Advanced Sports Enterprises as part of the deal, and the new parent company was designed to oversee brand development, wholesale and retail operations, while ASI’s wholesale and Performance Bicycle’s retail operations would be separately managed, the company said.
Cunnane was to be CEO of Advanced Sports Enterprises while also leading the brand development and wholesale division under the ASI banner in Philadelphia. And Performance Bicycle CEO David Pruitt was to lead the retail division under Performance Bicycle in North Carolina.
“This move capitalizes on continuing changes in the bicycle industry,” Cunnane said at the time of the deal. “ASI has seen remarkable growth over the last decade and, like so many of our customers, Performance has been an instrumental partner each step of the way. As our industry continues to evolve, ASE—with separate divisions focusing in wholesale/brand development and retail—is ready to grow.”
Added Pruitt: “Competitive differentiation is absolutely critical given the historic shift we’re seeing in consumer buying behavior and the retail landscape as a whole. This new business model will provide tangible benefits for both companies and will fuel the next round of growth for Performance. This will be great for our associates, our vendor partners and our customers. We’re very excited to move forward under this new structure.”
Pruitt stepped down from Performance Bicycle in November 2016, three months after the deal.
The move gave the newly formed ASE a solid omnichannel approach to sales with manufacturing, distribution and retail in a nice vertical alignment, according to Jay Townley, a partner with bike consulting/research firm Gluskin Townley Group.
“I think ASI made an excellent strategic move,” Townley told SGB at the time. “However, retail is a tough, tough business these days. Of all the sectors impacted by the changing digital landscape, retail has been the hardest hit and is going through a huge transition.”
And in Friday’s press release, Cunnane noted the business “has seen some highs and lows.”
“SE Bikes is definitely one of the shining stars in our brand group,” he said. “Demand for urban BMX bikes has outpaced our factory’s ability to produce them. It’s a great problem to have. And we thank our retailers for supporting the business and for making this enormous growth possible.”
The manufacturing side of the business has been solid, with sales of Fuji Bikes, Kestrel Bicycles, Breezer Bikes, and Tuesday Cycles all “steady” with new product lines being introduced each year. But “on the retail side, ASE has faced challenges increasing profits and improving sales since its acquisition of its retail operations,” the company said.
Efforts to reach ASE were unsuccessful, but Cunnane told Bicycle Retailer And Industry News (BRAIN) in a Friday article that the retail side had been a drag on the company and at least 40 of 104 Performance Bicycle locations will close in the coming months.
ASE is working to renegotiate some leases at those 40 underperforming Performance Bicycle locations, but that “We will emerge [from bankruptcy] with fewer retail locations,” Cunnane told BRAIN.
In the bankruptcy press release, Cunnane issued a statement of how business will proceed during the Chapter 11 restructuring: “While ASE is undergoing the Chapter 11 process, we will continue with business as usual; orders will be fulfilled and Performance Bicycle stores will continue operating. Until the process of reorganizing our company before a bankruptcy court with counsel from Clear Thinking Group and Gordon Brothers is complete, I’m unable to announce any further actions. Employee layoffs and store closings are inevitable, but at this time I do not have enough information to announce those plans. My goal is to continue to work through this process and keep our business intact. My vision for ASE is to become a profitable, vertically integrated, omnichannel bicycle manufacturer, wholesaler and retailer.”
Photo courtesy Performance Bicycle