“Gotta Go to Mo’s” is a phrase that may continue to ring true in New York City, but consumers will have far fewer places to head for their apparel and licensed garb, according to bankruptcy court documents filed in early March.
Six Modell’s Sporting Goods stores owned by non-debtor Henry Modell & Co., a spin-off controlled by Modell’s CEO Mitchell Modell, are not part of the Chap. 11 bankruptcy filing proceeding and may continue operating in some form. Inquiries on their status to the Long Island real estate firm handling the marketing of 137 Modell’s store leases and to the retailer’s counsel were unanswered as of press time.
Since April 2011, Henry Modell & Co. (HMC) has operated under a “shared services” agreement with the larger Modell’s retail operation for inventory and other services. The 134-door Modell’s business that intends to liquidate owed HMC some $40 million as of the March 11 bankruptcy petition date.
The downfall of the Modell’s brick-and-mortar empire, which generated $490 million in annual sales (46 percent from apparel) in 2019, was caused by a number of factors, including the annual burden of $95 million in store rent expenses. In early 2019, RBC Capital Markets executed confidentiality agreements with 14 potential buyers and eight management presentations for possible acquirers.
The bankrupt business has $288 million in liabilities and $220 million in assets. Modell’s owes it top three unsecured creditors — Adidas, Nike and Under Armour — $21.5 million in aggregate.
Increased competition from big-box and specialty sporting goods retailers, declining participation in team sports among youth and teens and the ongoing consumer migration away from physical retail stores to online shopping were all contributors, according to bankruptcy court documents. In 2019, Modell’s was hit with modified terms from key vendors on deliveries due to published reports about the retailer’s financial stability. And more recently, Modell’s saw its cold weather softgood sales sag in Dec. 2019 and Jan. 2020 due to an unseasonably warm winter.
The bankruptcy filing became necessary when negotiations with potential bidder for the business fell apart and Modell’s liquidity continued to tighten. Earlier, CEO Modell took a number of actions aimed at propping up the fortunes of the family business and generating cash. Several years before pumping $6.8 million in personal resources into the operation, lobbying landlords for rent concessions and urging key vendors to provide more favorable credit terms, he sold the family-controlled, 336,000-sq. ft. distribution center in the Bronx to an Annapolis, MD-based logistics firm for $115 million. Terms of that deal require Modell’s to vacate the facility before the end of 2020. The anticipated cost for Modell’s to equip and lease another distribution center is estimated at $22 million.
But by mid-February, faced with few other options, Modell’s decided to shrink its store portfolio and commenced closures at 19 unprofitable locations. The retailer did not pay February or March rents on most stores and sharply cut back payments to vendors, suppliers and service providers due to reduced liquidity. Some vendors responded by holding back store deliveries. With less than $10 million available under its credit agreement, Modell’s consultants decided the business no longer had enough liquidity to continuing operating normally, prompting the March 11 filing of the bankruptcy petition in New Jersey.
The retailer has begun liquidation sales, and is offering 25 percent off all online purchases.