Yet another troubled retailer has escaped extinction, this time in a surprising twist.
Richmond, Virginia-based LL Flooring, after announcing last week it was liquidating and closing all its stores after filing for Chapter 11, has found a buyer, private equity firm F9 Investments of Miami Beach, Florida. The retailer said it has signed an agreement for F9 to acquire 219 stores that will remain open; the inventory in those stores; a distribution center in Sandston, Virginia; its intellectual property; and other company assets.
The going-concern sale is expected to be completed by the end of the month, subject to approval by the bankruptcy court and other closing conditions, according to LL Flooring, formerly known as Lumber Liquidators. The retailer also said it is continuing to work with Hilco Merchant Resources to conduct recently initiated store-closing sales at 211 locations, as well as the 94 store closings already in process, those previously announced on Aug. 11.
F9 is led by Lumber Liquidators founder Tom Sullivan, who had once unsuccessfully tried to purchase the chain and was a critic of its management. CoStar News emailed F9 for comment but didn't immediately hear back.
A bevy of retailers, including 99 Cents Only, this year filed for bankruptcy protection and then said they planned to wind down their operations and close all their stores. But now LL Flooring has joined home goods seller Big Lots and teen fashion retailer Rue21, two chains that also filed for Chapter 11, in getting a sudden and unexpected reprieve that will keep some of its brick-and-mortar locations in business. But several brokers said the bailouts may not result in a permanent rescue for beleaguered retailers with unsolved problems.
Rescue not guaranteed
Columbus, Ohio-based Big Lots on Monday said it had a deal to sell its assets, including its 1,300 stores, to private equity firm Nexus Capital Management. The buyer intends to keep the chain operating, but Big Lots said it is in the process of downsizing the store fleet.
In Rue21's case, the chain has been resurrected. Warrendale, Pennsylvania-based Rue21 sought bankruptcy protection in May — the third time it has done so — and said it planned to close all its 540 stores in the following two months. Then in August, Toronto-based YM, with a portfolio that includes the Charlotte Russe and Urban Planet chains — started to reopen dozens of Rue21 stores. YM had acquired Rue21's intellectual property rights and brand name out of Chapter 11 for roughly $4 million.
A total of roughly 70 Rue21 stores reopened in August or are slated to reopen this month, according to the chain's website. More Rue21 stores are coming in the fall, the site said.
Two retail brokers said that having a last-minute buyer come to the rescue may not save the day permanently for a retailer in Chapter 11.
"It's not uncommon for a retailer to luck [out] and be bailed out, but all too often the buyer isn't able to make a go of [an] outdated retailer," Chuck Lanyard, president of the Goldstein Group, said in an email to CoStar News on Monday. "In some cases[,] the purchase is made for the real value of all the retail leases in place. If the sites are in prime locations, and the lease rates are below market, then a creative buyer can reposition and lease to other more viable tenants."
As for LL Flooring's sale, "since they were still in the store closing mode and the leases had not been rejected yet, it's sort of the same as going to auction for the store leases," according to Bill Read, executive vice president of Retail Specialists.
"The original founder appears to be the buyer and he certainly played his card well in order to get the best possible price," Read said in an email to CoStar News. "Even at a great price, [it's] hard for retailers to reverse the trends that got them into financial trouble to begin with. The consumer loses confidence in the brand and shops elsewhere."
F9 finally succeeds
Last year F9 tried to acquire LL Flooring, but ended up withdrawing its offer. The firm earlier this year launched a proxy fight to gain control of the flooring retailer.
Most recently, LL Flooring made "significant efforts" to preserve the business and maintain ongoing operations, according to Charles Tyson, the retailer's president and CEO. Before initiating the Chapter 11 proceeding, LL Flooring said it had marketed its business and garnered significant interest. It used the bankruptcy proceedings to continue pursuing a going-concern sale of its assets.
"While the company had filed materials with the bankruptcy court on Aug. 30 regarding the intent to pivot to a full liquidation of the business, the company was able to subsequently reach the asset purchase agreement with F9 Investments," LL Flooring said.
"The 219 continuing stores that are part of the asset purchase agreement, along with the company’s online platform, are open and continuing to serve customers with few changes to store operations and policies," according to LL Flooring.
For the record
Skadden, Arps, Slate, Meagher & Flom is serving as legal counsel, Houlihan Lokey is serving as financial adviser and AlixPartners is serving as restructuring adviser to LL Flooring.