When interest rates are low and money is cheap, Chapter 11 bankruptcy can be a lifeline for struggling businesses. In many cases, the company understands its problems and sees a path toward profitability but can’t pay its bills or fund needed changes from existing cash flow.
A Chapter 11 filing allows a company to negotiate with its vendors. That could lead to some debt being forgiven, longer payoff periods, or even the debtor taking an ownership stake in the company.
The entire process, however, hinges on a company being able to find the cash needed to operate. That was never easy. A lender needs to look at the struggling company’s books and truly believe that if it loans it the money, it stands a good chance at seeing that capital returned.
A number of major names have recently gone from Chapter 11 bankruptcy to liquidation because they could not find the needed funds. Bed Bath & Beyond, Tuesday Morning, and Christmas Tree Shops all had debt that grew during the covid pandemic.
In theory, without that once-in-a-lifetime (hopefully) scenario, all three companies would still exist. Unfortunately, with money being more expensive due to rising interest rates, none of the three brands could find a cash lifeline or a buyer looking to take over their operations.
Now, it appears the same thing will happen to Z Gallerie, a struggling furniture retailer that has survived bankruptcy twice previously.
A liquidation sale is usually the final step if a company cannot make a deal to emerge from Chapter 11.
Image source: TheStreet
Z Gallerie faces Chapter 7 bankruptcy
The parent company of Z Gallerie, an upscale furniture and home decor retailer filed for Chapter 11 bankruptcy on Oct. 16.
“DirectBuy Home Improvement, an affiliate of parent CSC Generation Holdings, on Oct. 16 filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of New Jersey, claiming a lasting impact from the Covid-19 pandemic on the retail industry and supply chain and import cost increases in late 2021 and into 2022 severely impacted its brand profitability and cash position,” TheStreet’s Kirk O’Neil reported.
The chain, according to court documents, was hoping to find a buyer, but that now appears unlikely.
Interim CEO Robert Fetterman has cited a slowdown in home sales due to rising mortgage rates as well as supply chain woes as being the reason for Z Gallerie’s struggles. Now, just a week after the Chapter 11 filing, the company “is still searching for a buyer, but is preparing to liquidate in case none materializes, according to the CEO, Retail Dive reported.
Z Gallerie had previously filed for bankruptcy in 2009 and 2019. The company does not define itself as a traditional furniture store.
“We’re a gallery of modern glamour. An unforgettable destination of unique and fun home furnishings and decor,” it shared on its website.
Furniture retailers have struggled
Wayfair (W) – Get Free Report, an online furniture retailer has struggled since the world opened up after covid lockdowns. CEO Niraj Shah addressed the company’s turnaround efforts during its second-quarter earnings call.
“Last year, we laid out a plan to strengthen our business that included a path to sustainable and growing profitability with several key milestones. For the past few quarters, you’ve seen us execute against that plan to lower our costs, focus on the basics, and earn more customer and supplier loyalty,” he shared.
Shah spoke glowingly of the plan’s impact, but revenue did drop by 3% in the quarter. The company, however, has cut about $1 billion in annual expenses. The company did cut its loss from $378 million in the year-ago quarter to $46 million.
In the past few months, furniture maker and retailer Mitchell Gold + Bob Williams quickly moved from Chapter 11 to liquidation as did furniture maker Noble House.