How Modell’s survived a bankruptcy scare
Mitchell Modell, CEO of Modell’s Sporting Goods, believed he had only 48 hours to avoid liquidation after a Wall Street Journal article came out stating that the chain had hired a restructuring advisor and was considering a bankruptcy filing.
Mr. Modell told SGB Media that Berkeley Research Group (BRG) was hired for consulting purposes and not for restructuring work, but the timing couldn’t have been worse.
Some payments to vendors were late after a poor December and January, in large part due to warm weather in the northeast. Modell’s CFO had decided to leave the retail industry to join Town and Country Living two weeks before the WSJ article arrived on March 11.
Further, vendors serving the sporting goods industry had already been burned by the bankruptcies of Sports Authority, MC Sports, Eastern Mountain Sports and others and weren’t willing to risk promises.
Within four days, daily shipments to Modell’s distribution center slowed to 7,000 from 18,000 as trade credit dried up.
Mr. Modell’s strategy, according to a follow-up article in the WSJ, was to ”over-communicate.” The CEO and his chief merchandise officer reached out to all 300 suppliers across the CEO, CFO and credit officer levels as well as their financiers to convince them to resume shipping.
Management handed out financials under nondisclosure agreements. In a series of videos on Vimeo, Mr. Modell promised to invest $6.8 million of fresh capital into the company and the company talked up a new operating plan to drive further improvement. Mr. Modell offered his personal cell phone number to anyone with concerns.
In the end, 297 of the 300 vendors resumed shipping to the retailer.
“Be transparent. Be forthcoming. Don’t hide” was a key learning for managing such crisis situations, Mr. Modell told SGB Media. He considers himself fortunate to be able to lean on relationships built up over a lifetime in sporting goods.
Still, Mr. Modell expects to continue operating Modell’s more like a public company with greater accountability and transparency to partners due to the continued unsettled retail climate. Mr. Modell said, “Right now, we’re in a fishbowl.”
- Sporting-Goods Retailer Modell’s Hires Restructuring Adviser – The Wall Street Journal
- How Modell’s Narrowly Escaped the Retail Apocalypse – The Wall Street Journal
- Modell’s Fight For Survival – SGB Media
- The Inside Story On How Modell’s Came Back From A Near Disaster – Sporting Goods Intelligence
DISCUSSION QUESTIONS: What lessons should other retail leaders glean from Modell’s success shoring up trade credit support? Do you recommend having greater transparency with vendors before crisis situations arise, given the uncertain retail climate?