Bye-bye Joe's — liquidation seals its end

On April 9, just over a month after filing for Ch. 11 bankruptcy protection, the U.S. Bankruptcy Court in Delaware sealed the fate of Joe’s Sports by awarding liquidation rights to Boston-based liquidator Gordon Brothers Group. In partnership with Crystal Capital Management and others, Gordon Brothers won the rights to liquidate the inventory, valued at $128.5 million, for a bid of $61 million.

This marks the beginning of the end for all remaining 31 stores in the bankrupt retail chain that began 57 years ago as an army-navy surplus store — launched from the trunk of founder Ed Orkney’s car in Portland, Ore.

According to court documents, Joe’s will receive an immediate cash payment of $48 million with the balance due when the liquidation is complete.

First in line to receive money from the liquidation are the retailer’s senior lenders, who, according to court documents, will be awarded approximately 80 percent of what they are owed, or just over $43 million. Unsecured creditors — the largest 30 total $12.8 million owed according to court documents — will be next in line. One unsecured creditor company executive who spoke with SNEWS® expects the liquidation to generate a return of, as he put it, “dimes on the dollar.”

If sales of liquidated merchandise exceed $61 million, Gordon Brothers and Joe’s will split profits up to a cap of 1.5 percent of the $128.5 million. Once that cap is reached, Joe’s receives 80 percent of all proceeds with the remaining 20 percent going to the liquidator.

–Michael Hodgson

SNEWS® View: Perhaps there is some irony to be found in the fact that the huge void which Joe’s liquidation will leave began on the first day of Passover and a day before Good Friday, a bank holiday in Great Britain, and a day of mourning the death of Christ for Christians. The first hint that this was a likely scenario popped up when the creditor’s committee objected to the bankruptcy filing by Joe’s as it was written, which was approved by the judge — click here to read the March 27, 2009, SNEWS story “Did you hear?…Things not going so smoothly for Joe’s Ch. 11 reorganization case.”

This is a very sad day. Employees suddenly out of work — that’s perhaps the saddest news of all. But it should be a sad day for us all, even Joe’s competitors. This is not good news. It does not seem all that long ago that owner Ed Orkney opened his fifth G.I. Joe’s store in Salem, Ore., and acquired land for the company’s distribution center in Wilsonville, Ore. — that distribution center has remained in operation since. In 1977, Ed Orkney passed away, and his son, David, assumed control as CEO and chairman of the board. In 1992, Norm Daniels, an employee of G.I. Joe’s since his teenage years, took over as CEO. Six years later, in 1998, Daniels led a management buyout of the retailers and assumed control as chairman of the board and majority owner of the company. In January 2007, Daniels sold a controlling interest in G.I. Joe’s to Gryphon Investors of San Francisco, reportedly for around $50 million. Gryphon made quite a big deal of changing the name of the stores to Joe’s Sports, Outdoor & More. The 31st store opening for Joe’s was on May 1, 2008, in Nampa, Idaho. Many point to that day in January, when Gryphon assumed control, as the beginning of the end, and the name change just underscoring the fact the venerable retailer had lost its way.

Now, the question is who, if anyone, will or should step in to fill the void left by Joe’s? The loss of sales, amounting to $250 million or so, will be felt deeply by Joe’s suppliers. The debts that will go unpaid will also be felt quite deeply. Too, that entire liquidated inventory, selling at deep discounts, is not going to help the overall specialty outdoor market either. In fact, there is WAY too much old and dying inventory selling at deep discounts right now to be helping anyone. Sportsman’s Warehouse too has its liquidation sales, which the retailer, according to court documents, expects to generate $40 million.

–SNEWS® Editors