GRAND RAPIDS — Sporting goods retailer MC Sports might need a Hail Mary pass right about now.
Amid increasing challenges from e-commerce sellers and a fiercely competitive sporting-goods retail market, the Grand Rapids-based sporting goods retailer abruptly filed for Chapter 11 bankruptcy this week in the U.S. Bankruptcy Court for the Western District of Michigan.
MC Sports said it would immediately begin liquidating inventory at all of its 68 stores across seven Midwest states. The retailer retained Boston-based Tiger Capital LLC and Great American Group LLC to manage the store closings, according to court filings.
The move came after MC Sports failed to strike a deal with trade creditors, vendors and landlords to restructure the company’s balance sheet, CEO Bruce Ullery said in a statement. With a “viable out of court proposal” off the table, MC Sports, whose legal name is Michigan Sporting Goods Distributors Inc., opted for the Chapter 11 filing so it could continue to do business during the liquidation sales.
While the legal maneuver gives MC Sports time to reorganize and seek alternative financing, local bankruptcy experts offer little hope for the retailer’s future prospects.
“This will be a liquidation,” said Robb Wardrop, a bankruptcy attorney at Grand Rapids-based Wardrop & Wardrop PC. “There’s very little good news for anyone in West Michigan. Jobs will be gone. Landlords will lose tenants. West Michigan will lose another good citizen.”
Wardrop represents Grand Rapids-based REM Real Estate Company LLC, one of MC Sports’ landlords.
While some sources envisioned scenarios in which the retailer could emerge from bankruptcy as a much smaller company, experts say MC Sports must clear many high hurdles to remain in the race.
The company faces significant liquidity challenges and a number of legacy costs, including long-term leases that are not in line with market conditions and more than $14 million in trade debt, according to court filings. As this report went to press, MC Sports had not obtained debtor-in-possession financing, according to sources familiar with the retailer’s bankruptcy proceedings. The so-called DIP financing provides a company with capital to pay employees and suppliers as it attempts to reorganize.
Stephen Grow, an attorney with Warner Norcross & Judd LLP representing MC Sports, said in court today that the company is running a “dual-track” process wherein they aim to liquidate the stores to whatever extent possible while also hoping to attract a buyer.
“How likely that is is anybody’s guess,” Grow said, adding that he doesn’t believe the liquidation process interferes with the marketing process.
Even if it were to attract a buyer, MC Sports would still have to perform in an increasingly competitive sporting goods industry in which several retailers have sought bankruptcy protection over the past year.
The largest of those came last May, when national chain Sports Authority Inc. liquidated its operations just months after filing for Chapter 11 bankruptcy.
Earlier this month, the parent company of outdoor retailer Eastern Mountain Sports filed for Chapter 11 bankruptcy protection. Earlier this week, St. Paul, Minn.-based Gander Mountain Inc., the nation’s largest outdoor retailer with 162 locations in 26 states, found itself in a position to respond to rumors that it was preparing to file for bankruptcy.
Matt Powell, vice president of sports industry analysis at Port Washington, N.Y.-based NDP Group Inc., called 2016 an “average” year for the sporting goods industry, noting that the liquidation of Sports Authority actually helped to relieve some pressure for more regional players, because of the company’s market share.
Nonetheless, he said the pressures retailers have experienced with changing shopping habits and the continued rise of e-commerce aren’t likely to change soon.
“It’s sort of a confluence of events,” he said. “This is not the beginning of the end here. This is the beginning of the beginning.”
A PATH FORWARD?
Industry analysts and investment banking sources tell MiBiz that a handful of scenarios exist wherein a vastly scaled-down MC Sports could continue to operate, even as they concede it is unlikely.
“After reviewing the filings and talking to several smart investors, we concluded there is not opportunity here,” Remos Lenio, a partner at Grand Rapids-based investment banking firm Tillerman & Co., told MiBiz. “The company does not offer anything other than goods for sale — i.e., there is no necessary expertise needed to help sell or buy the products — so there is no reason for a retail presence to sell the goods.”
Nonetheless, Lenio said in a follow-up interview that he could imagine a scenario wherein the chain has 10 to 12 smaller stores concentrated in just the West Michigan area.
That’s a scenario that rings true for analyst Powell.
“I think they’re still trying to find a way to operate as a smaller, more nimble retailer,” Powell said. “I think every retailer would tell you that if they could close 20 percent of their least productive stores, their overall profitability would be a whole lot better.”
Powell noted a handful of other sporting goods retailers around the country currently going through bankruptcy proceedings have attracted potential buyers.
Multiple messages sent to Ullery at MC Sports and attorneys representing the company were not returned as this report went to press.
While it’s increasingly unlikely that MC Sports will remain the company so many have known since its founding in 1946, other West Michigan sporting goods retailers say it’s still possible to find success in the shadows of online behemoths like Amazon.
Chris Lampen-Crowell, co-owner of Gazelle Sports Inc., told MiBiz that focusing on a sporting goods niche — namely running and fitness — has propelled the Kalamazoo-based company to modest revenue growth and allowed it to move beyond West Michigan. Gazelle opened two stores in Southeast Michigan in recent years.
“Being in a niche retail segment is very helpful,” said Lampen-Crowell, adding that aside from selling equipment and apparel, the company tries to hold events that tap into the lifestyle of its core customer base. “You can be closer to the customer. … To the business that adjusts, it’s challenging, but you can take market share. Those that are trying to be all things to everybody will find challenges.”