February 6, 2019 – Things Remembered and three affiliated Debtors (the “Company”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 19-10234. The Company, an omnichannel retailer of personalized gifts and merchandise marketed through a portfolio of physical stores, an online store and a catalog center that serves our business accounts, is represented by Adam G. Landis of Landis Rath & Cobb. Further board-authorized engagements include (i) Kirkland & Ellis as counsel, (ii) Berkeley Research Group, LLC (“BRG”) to provide a Chief Restructuring Officer and a Chief Financial Officer, (iii) Stifel, Nicolaus & Co., Inc. and Miller Buckfire & Co. LLC (collectively “Stifel/MB”) as financial advisors and investment bankers and (iv) Prime Clerk as claims agent. The Company’s petition notes between 10,000 and 25,000 creditors; estimated assets between $50mn and $100mn; and estimated liabilities between $100mn and $500mn. Documents filed with the Court list the Company’s three largest unsecured creditors as (i) Cortland Capital Markets Services LLC (“undetermined” bank debt), (ii) Winko International Products LTD. ($3.6mn trade payable) and (iii) Google Inc. ($3.3mn trade payable).
Enesco Stalking Horse Agreement
Contemporaneously with the Chapter 11 filing, the Company announced that it had executed an agreement (the “Stalking Horse APA”) to sell most of its business to Enesco, LLC (“Enesco”), a global leader in the giftware, home décor, and accessories industries. In a press release
announcing the filing, the Company advised that, “Enesco intends to operate Things Remembered online, direct mail, and B2B retail businesses, as well as a portfolio of current stores under the Things Remembered brand.” Nelson Tejada, President and Chief Executive Officer of Things Remembered commented, “We will now build on our legacy as the leading omnichannel retailer focused on personalized gift merchandise. Among other growth initiatives, we plan to reinvest in our marketing and personalization technology, and to reinvent our in-store experience.”
In a declaration in support of the Chapter 11 filing (the “Duffy Declaration”) [Docket No. 4], Robert J Duffy, the Company’s Chief Restructuring Officer, detailed the events leading to the Company’s selection of Enesco as a stalking horse bidder, “With downward spiraling liquidity and increasing financial challenges, the Debtors concluded, in consultation with their legal and financial advisors, that pursuing a going-concern sale of the Direct Business and the Acquired Stores, coupled with a wind-down of all stores not acquired under the Stalking Horse APA, was the best option to maximize value for the Debtors’ estates and creditors. Leading up to the Petition Date, Stifel/Miller Buckfire contacted 28 potentially interested strategic and financial parties, comprised of 12 financial parties and 16 strategic parties. Of these, approximately 13 parties entered into confidentiality agreements with the Debtors and received a copy of the Debtors’ investor presentation and thus began the diligence process. Six parties showed interest following receipt of the investor presentation and were granted dataroom access. Four parties conducted management meetings or calls and three parties toured the Debtors’ Fulfillment and Distribution Center.
By early January 2019, the marketing process yielded two written proposals to acquire the Debtors’ Direct Business but no physical store locations. These negotiations progressed toward definitive asset purchase documentation; however, just days before the Petition Date, these parties and the Debtors were unable to reach an agreement sufficient to establish either party as a stalking horse bidder.
In the week preceding the Petition Date, Enesco submitted a written proposal seeking to acquire a broader asset base than the other proposals—the Direct Business and the Acquired Stores. The Debtors quickly moved to negotiate with Enesco in anticipation of obtaining a higher purchase price and preserving hundreds of jobs and potentially many more. After vigorous negotiations, the Debtors and Enesco reached an agreement on material terms and moved toward definitive documentation.
The Debtors determined that Enesco’s proposed $17.5 million purchase price for the Direct Business [comprised of the Debtors’ e-commerce website, headquarters, fulfillment and distribution center in North Jackson, Ohio (the “Fulfillment and Distribution Center”), and related assets] and Acquired Stores [128 of the Debtors bricks-and-mortar locations], subject to a right to add or remove stores with a 50 store minimum, was superior to the other potential stalking horse bids. Enesco’s proposal provided multiple benefits over the other written proposals, including, among other benefits, Enesco’s familiarity with the gifting sector, the broader acquired-asset base, and greater prospective employment levels.”
Events Leading to the Chapter 11 Filing
The Duffy Declaration describes “a confluence of factors” contributing to the Debtors’ need to commence the chapter 11 cases, including (i) macroeconomic factors—most significantly, the general shift away from brick-and-mortar stores to online channels and the accompanying departure of anchor mall tenants and (ii) microeconomic factors— including delays in the website migration, year-over-year lagging store sales, delayed procurement and non-receipt of inventory due to vendor payment issues. Over time, these factors tightened liquidity, with year-to-date comparable store sales declining 6.2% percent and a negative year-end EBITDA of $4 million and further complicated relationship with nervous vendors. These factors culminated in a liquidity crisis by December 2018, when the Debtors faced “dwindling cash flows, inaccessible inventory, tightening trade credit, the inability to access incremental liquidity, and winter holiday sales below historical numbers.”
: In addition to the challenges facing brick-and-mortar retailers generally, the Debtors have also suffered from operational challenges that contributed to a steep decline in EBITDA. First, the Company expended substantial capital in 2016 to revamp the merchandise structure and enhance the personalization experience. These improvements temporarily drove positive comparable store sales but were offset by a decrease in foot traffic due to numerous anchor tenants terminating leases through bankruptcy or otherwise. Second, in November 2016, a website migration experienced technical challenges which impacted sales. Third, in addition to challenges associated with the website migration, consistently declining sales squeezed liquidity and further forced cost cutting in key business areas, including with respect to marketing, inventory, store leases, and employees.
Supply Chain and Vendor Challenges: As liquidity tightened, vendors began to place pressure on the supply chain cost structure by delaying or cancelling shipments until receiving payment. Beginning in August 2018, merchandise shipments and inventory receipts began to slow due to shrinking liquidity and a lack of vendor support. Prior to the Petition Date, substantial numbers of vendors refused to ship inventory unless the Debtors paid cash on delivery, resulting in shelf-ready merchandise being stranded. Specifically, a large volume of inventory that was critical for the winter holiday season lay dormant in distribution centers and ports and was inaccessible due to a lack of liquidity necessary to satisfy vendors, which hurt the Company’s performance during the all-important winter holiday season.
The Duffy Declaration states, “The current store footprint is unsustainable in light of the Debtors’ strained liquidity. To this end, prior to the Petition Date, the Debtors concluded 37 closings of stores with January 31st lease expiration dates….The Debtors will continue closings of approximately 250 stores postpetition. Under the Stalking Horse Bid, all stores other than the Acquired Stores will be wound-down through the Phase 1 and Phase 2 Store Closings. As discussed above, the Debtors entered into the Consultant Agreement with the Consultant [with Hilco Merchant Resources, LLC and Gordon Brothers Retail Partners] to conduct these store closing sales.”
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