As Sports Executive Weekly speculated earlier last week, The Athlete’s Foot on Thursday filed for Chapter 11 bankruptcy protection less than one year after a management team led by CEO Bob Corliss acquired the athletic specialty retailer from former parent Group Rallye SA. The resulting company focused on a franchise model takes TAF back to its 1971 genesis when founders Robert and David Lando started franchising after opening just one store in Pittsburgh.
The Athletes Foot will immediately liquidate its 124 corporate stores and focus its energy on building its franchise base, which has proved to be a stronger model here in the U.S. The bankruptcy filing listed assets of $33.6 million and liabilities of $39.4 million. The Athletes Foot reported a loss of $21 million on revenue of $172 million in 2003.
GMAC is listed as the only secured creditor with a $14.0 million claim. The claim is valued at “substantially all” of TAFs assets. New Balance is listed as the largest unsecured creditor with roughly $1.43 million in claims and K-Swiss is right behind them with approximately $1.36 million. Nike is owed nothing in the filing since they had TAF on pay-in-advance terms. Reebok International ($550 for Reebok and $259k for OnField), Timberland ($739k), and Puma North America ($605k) round out the top five trade creditors. A full list of creditors can be found in the online version of this article at www.SportsOneSource.com.
The bankruptcy action was taken by The Athlete’s Foot Stores, LLC, which owns and operates the TAF corporate stores. The Athlete’s Foot Brands, Inc., which has common ownership and management of the LLC, owns the brand trademark and manages marketing, franchise support, and the monitoring of franchise store activities. The Athlete’s Foot Brands, Inc. is not included in the bankruptcy and franchise stores are not affected by the action.
The filing indicates that TAF has developed a preliminary business plan which calls for them to “initially engage in the orderly liquidation of their entire inventory position.” At the same time, the retailer will look for a buyer for all furnishings, fixtures and leaseholds. Any unsold leases will be rejected in the BK.
In an interview with SEW shortly after the filing, CEO Bob Corliss said that they had two business models. One was profitable and the other was “always a problem.” Corliss said that TAF really was a franchisor with some corporate stores rather than a retailer with some franchise stores.
He indicated that they had reduced the number of corporate stores to just 124 doors from over 280 a few years ago. The CEO told SEW that another ten stores were slated to close soon as their leases expired. On the other hand, the company now has 230 franchise stores in the U.S. as part of a total 593 franchise stores worldwide.
SEW expects that the liquidation of the corporate stores could prove beneficial for the franchisees on a number of levels. We would expect that some of the stronger franchisees would bid on that real estate since the formats would make for an easy transition with little or no upfit involved. “Weve had a corporate store conversion program in place for two years,” said Corliss, referring to a program for franchisees to buy out corporate stores in their markets. This move, in essence, opens up 124 new markets for them.
SEW asked Corliss about the future of the employees and management of the company and the status of the real estate in Atlanta. “We will take out expenses commensurate with the liquidation of the 124 stores,” said Corliss. He went on to say that a firm plan had not been developed and that management was working on a new structure as a franchise-only business.
Corliss told SEW that they had sold the building in Kennesaw about eight months ago and are now occupying just 20,000 square feet of office space versus roughly 46,000 sf two years ago. “This structure was designed and built to service 500 corporate stores,” said the CEO. “That model was abandoned years ago.” He also said that TAF quit using the warehouse three years ago when they moved to a third party consolidator. “We had a 116,000 sf warehouse with $8 million in inventory sitting there,” he said. “It just didnt make sense.”
Asked about the near and long-term future for the business, Mr. Corliss responded, “I now have a job ahead of me to maximize value for the creditors”. He said he was also focused on “allowing the brand and the franchisees to flourish.”
The fatal blow for TAF came on the heels of a new $20 million secured revolving credit facility from GMAC Commercial Finance LLC that TAF inked in October. GMAC forced the retailers hand after TAF failed to meet certain covenants. The loss of ready capital hurt TAFs ability to buy new goods as vendors got nervous. The BK filing shows that GMAC notified TAF on Nov. 23 that it was terminating its commitment to make advances under the credit facility. GMAC later extended a date it had set to exercise its rights and remedies, due in part to TAFs strict adherence to certain action steps, among which included providing GMAC with a proposed debtor-in-possession budget. The filing also indicates that TAF and GMAC have agreed to terms for DIP financing.
>>> Many saw this one coming a year ago, but it still hurts those that put so much energy and trust into making the business successful
>>> We imagine that this now gives the franchisees some relief from the corporate woes that have surely been a drag on their businesses
>>> Just what the Southeast rep agencies need — one more hit
