It’s time for retailers to start placing their orders for the items that will be on shelves during this holiday season, but one thing may be different from last year: they may be ordering less merchandise on consignment after millions of dollars’ worth of merchandise was stuck in legal limbo during the bankruptcy of big-box sporting goods retailer Sports Authority.
During the chain’s going-out-of-business sale, we made fun of the racks of ski gear in May, but there was a good reason why that merchandise was there: the retailer and its vendors spent the first month of the bankruptcy fighting over who would receive the proceeds from selling that merchandise. Would it be lenders or the vendors?
While some were actually the same companies, that wasn’t really the point. Selling everything and deep discounts wasn’t what the consignment vendors agreed to, and neither was leaving everything behind when stores closed. Now, Bloomberg reports, suppliers are nervous that this could happen and hesitant to sell on consignment.
For all of that winter gear, the companies reached a compromise that vendors would receive 60% of whatever Sports Authority took in. The chain had an unusal amount of goods that really belonged to other companies on its shelves at the time of bankruptcy, with a full-price retail value of $85 million.
This is an issue for the companies that lend to retailers in trouble, too: Sports Authority’s lenders didn’t know at the time that the chain didn’t own a lot of its own stock. This may have doomed the company in the end: fighting vendors in court instead of selling off all of that merchandise left the company in a position where it had to liquidate instead of just closing its least profitable stores.
Sports Authority’s Demise Shakes Faith in Consignment Deals [Bloomberg]
by Laura Northrup via Consumerist
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