(Bloomberg)—Vestis Retail Group LLC, the operator of outdoor gear retailer Eastern Mountain Sports, filed for bankruptcy protection after failing to adjust to changes in U.S. shopping habits, especially among young people.
Vestis, which also runs the Sport Chalet and Bob’s Stores chains, is owned by Philadelphia-based private equity firm Versa Capital Management. Its Chapter 11 petition filed Monday in Wilmington, Del., listed as much as $500 million in liabilities and less than $50,000 of assets.
“The continuing shift in consumer behavior away from traditional brick-and-mortar retailers and toward online-only stores, together with increased competition from big-box and specialty sporting goods retailers, have contributed to an industrywide weakness,” Mark Walsh, CEO of Vestis, said in a court filing. The company also cited unusually warm weather in the northeastern U.S. last year that hurt winter-gear sales and trouble converting to a new software platform.
Sport Chalet closing
The restructuring will focus on Eastern Mountain Sports, No. 508 in the Internet Retailer 2015 Second 500 Guide, and Bob’s, the company said, while all 47 Sport Chalet stores will be closed. Fifty-six locations will be shuttered in total, including one Bob’s store in Portland, Maine, and eight EMS locations.
The businesses together employ 4,000 people and generated $660 million in annual consolidated revenue, according to court records. EMS, which sells camping equipment and gear for hiking, skiing and adventure sports, and Bob’s Stores, a family clothing and footwear chain, operate primarily in the northeastern U.S., while Sport Chalet, a general sporting goods chain, can be found in the western part of the country. Eastern Mountain Sports had Internet Retailer-estimated 2014 web sales of $26.1 million, according to Top500Guide.com data.
The company said Vestis BSI Funding II LLC, advised by Versa, has agreed to buy substantially all of its remaining assets. Vestis will seek approval of a court-supervised auction process with the BSI offer as the opening bid, according to court papers.
Vestis will seek approval of as much as $125 million in debtor-in-possession financing from pre-bankruptcy lender Wells Fargo Capital Finance LLC to help fund operations while the company restructures.
Quick shift
The retail scene is changing fast and established stores are losing customers to big-box chains and online behemoths like Amazon.com Inc., No. 1 in the Internet Retailer 2016 Top 500 Guide. Pacific Sunwear of California Inc. (No. 339) went bankrupt in April, and Sports Authority Inc. (No. 287) sought creditor protection the month before, contributing to troubles at Vestis.
“Ongoing store-closing sales at certain Sports Authority locations have created unusual competition,” Walsh said in court papers.
Fewer teenagers are participating in team sports, increasing pressure on the $41 billion sporting goods industry, according to a report by the financial advisory firm Gordon Brothers Group. Meanwhile, the National Retail Federation predicts U.S. retail sales will grow just 3.1% in 2016 as people spend more on travel and dining out, rather than trips to the mall.
Vestis specializes in buying distressed companies, and Versa had built it into a portfolio of outdoor-oriented retailers, buying the money-losing Bob’s chain in 2008. Bob’s operates 35 stores. Eastern Mountain Sports was started by two Massachusetts rock climbers in 1967. By the time of its 2012 takeover by Versa, EMS had grown to 69 stores in 12 eastern states.
Two years later, Versa expanded to the West Coast with Sport Chalet, a California ski shop that started in 1959 and grew into a regional chain with more than 50 locations in three states.
The case is In re Vestis Retail Group LLC, 16-10971, U.S. Bankruptcy Court, District of Delaware (Wilmington).
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