Art Van is out of money and is liquidating and closing all stores

[blizzard]

https://youtu.be/KSbfhMGuUds

[WOHO]

Hey Cumulus, check out how well it works when you sell your real estate and hope to rent it back- it buys you one year in business and they you're screwed.

[audiophile]

Yep.

[696lover]

It is unclear to me if THLP is the landlord of the Art Van real estate. It also unclear to me if the real estate is free of bank liens. Perhaps 696lover has some inside info on this matter.

If Lee believes the real estate is worth considerably more than $550 million, then your theory may have merit, 696lover. However, that theory seems inconsistent with how THLP generally conducts its investment affairs.

I think this is a case of talent drain, mismanagement, and poor strategy, not an innate desire from day one to rip the company to shreds and sell pieces of the carcass. We can certainly blame THLP for the mismanagement and poor strategic execution; they hired the executives that succeeded Yost. The market expansion did come at a bad time. The ship was seemingly rudderless around that time.

Good article from Furniture Today:
https://www.furnituretoday.com/furnitur ... t-art-van/

(I don't buy the line of thinking that everything was hunky dory in 2017, though.)

By the way, I appreciate the nice words, Lester. Thank you!

I am home--not my office--but my wife is taking forever to get ready for brunch so I will answer. This is from memory.

In 2017 Art's personal trust owned most of the real property. As part of the deal he executed a lease with an in-between entity (I am writing this like it is a single store so it makes more sense) and then transferred the real estate ownership to another entity, subject to a mortgage with Citi (I think) to fund the purchase. Side note: There are also rights to payments from the finance companies/UCC liens on the inventory, fixtures... but the real value is the real property, and maybe the name

At the time there was a subordination agreement with Citi. Lee just recently paid down enough recently that Citi does not have a clear right to grab the real estate, because the owning and intermediate entities with interest in it can make as good or better of a claim and obviously, legal fiction notwithstanding, are together.

That was when the chain's fate was sealed.

No one other than the workers and suppliers are out much because lenders always get a big chunk up front and will get first dibs on the liquidation sale proceeds and fixtures. The smart suppliers saw this coming and either choked them down or filed consignment liens of their own to protect themselves on the inventory.

[MWmetalhead]

Thanks for taking the time to share some details, 696.

I'm a little confused, though. Was the structure you explained set up post-sale or was it instead concurrent with the sale to Lee Partners?

I do not quite understand the role of the "in between" entity. Is this a situation where the real estate owner leases the stores/land to the intermediate entity, who in turn subleases the store/land to Art Van Furniture? Art Van Furniture pays rent to the intermediate entity, who in turn pays rent to the real estate owner? If so, my guess is the equity percentages when comparing the intermediate entity to the real estate owner vary somewhat. Perhaps part of the rent paid to the intermediate entity funded dividends to its equity holders?

It's hard for me to envision a scenario where Citi would agree to release 1st lien mortgages from the real estate just from normal course loan amortization. Commercial real estate mortgages placed in the capital markets often have 20 or 25 year amortization schedules, which means very little of the original principal balance would have been repaid by now. That is, of course, unless a bunch of excess cash flow from operations was used to prepay the loan.

Usually, when a company is suffering from financial deterioration, creditors look to increase collateral rights, not decrease them. My guess is the Credit Agreement must have contained some sort of asset coverage test, and that if a certain level of collateral coverage could be demonstrated, collateral deemed excess collateral would be allowed to be released. Any releases of real estate collateral must've occurred when the real estate loan borrower was still in good standing under its Credit Agreement.

If Thomas H. Lee walks away with any type of significant proceeds here, it means the senior secured creditors were all deemed unimpaired.

Let's face it. The family wanted to bring in private equity in 2017 for a reason. They saw the writing on the wall. Unfortunately, private equity's involvement in this case evidently made things worse, not better. The revolving door in the CEO's office and other distractions prevented the Company from overhauling its business model to adapt to modern shopping habits.

[MWmetalhead]

What's interesting here is I don't believe a Bankruptcy petition has even been filed yet!

The news reports all say it is "expected" or "forthcoming." I'm too lazy to check Prime Clerk, Epiq, etc. right now to search.

Might the Company try to settle with creditors and liquidate on an out-of-court basis (other than some UCC foreclosures)?!?! That would be quite unusual for a Company of this scale.

I cannot help but wonder about the financial health of chains such as ABC Warehouse.

[Rate This]

Why does Fouts feel the need to inject things like "It's just a contrast to when Art Van was running the company" into statements trying to calm people down? Is he senile or something? Doubling down on how bad it is while trying to tell people it'll be ok makes absolutely no sense...

[TC Talks]

There were some cars at the Traverse City Art Van, nothing frenzied like what Warren had going on.

[MWmetalhead]

I live less than a mile from the Royal Oak store and didn't notice anything at all unusual when I drove by around 3PM today. (Granted, the parking lot at that location is behind the store, so I really couldn't tell if it was unusually crowded.)

The Warren location is the flagship store, is larger than many of the other Art Van locations in the area, and is also the site of the warehouse for the chain.

I think you had a number of issues in play in Warren. Multiple media outlets + the Warren PD confirmed the craziness of the traffic situation. 14 Mile at Mound Rd literally had to closed to thru traffic for a time this afternoon, according to reports. That intersection is a good half mile west of the store!

What are the issues in play? I suspect a lot of the traffic was due to local buyers wanting to immediately pick up their order straight from the warehouse. As stated earlier here, and by some media outlets, Art Van may be having delivery issues. WWJ reported outright that Art Van will not provide delivery services for any items bought during the liquidation sale. I believe the intent is to honor deliveries for items already purchased, *if* the item is actually in stock. If it's on back order - you are screwed!!! Accepting a substitute item or filing a claim with the Bankruptcy court are the only options.

That leads to my next point - Art Van's customer service center is based at the Warren store. My guess is the phone lines waiting to talk to a customer service specialist are jammed. Some folks maybe thought their questions / issues would be handled more expediently if they showed up in person?

The third & final issue is the fact - it's WARREN. Art Van has been part of that community for decades. I think people are in shock that they won't be able to furniture shop at Art Van in the not too distant future, so they wanted to give the store one last spin.

To answer Rate This's questions about Jim Fouts:
As a former resident of Warren for eleven years, I can undoubtedly say "YES," Jim Fouts absolutely is senile. He's also hot tempered and an attention whore.

I will say he is justified in (a) assessing the company for the cost of police security today and (b) attempting to claw back property tax abatements that were granted to the company. Not sure he'll be very successful on point (b), but it's worth a try.

[Bryce]

An old bent nosed furniture store owner friend of mine, who has since passed away, always used to say, " The two most profitable times in da furniture business is grand opening and going out of business."

He opened and closed at least a dozen stores in the time I knew him and used to buy fresh inventory as he "went out of business."

[ftballfan]

I wonder if the bankruptcy filing will be Chapter 7 or Chapter 11.

I'm very surprised ABC Warehouse is still in business.

[MWmetalhead]

There is going to be a glut of empty retail space on that side of Woodward Ave.

The longstanding Pasquale's restaurant is empty. Now, Art Van is going to be empty. These two properties are only a quarter mile apart. Those are probably the two biggest single store retail sites along Woodward Ave. in Oakland County.

I have skepticism regarding the ability of the Woodward Corners development to achieve full lease up. Small box strip space set up in a lifestyle center-type format doesn't work well in cold weather Michigan. The small boxes that aren't line-of-sight from the supermarket or that aren't line-of-sight from Woodward Ave. will struggle to remain filled or will struggle to even gain an initial tenant. Universal Shopping Center in Warren comes to mind. At least the site plan for Woodward Corners isn't quite as much of a clusterfuck as that one, and aesthetically speaking, Woodward Corners is more eye popping (in a good way).

I'm very surprised ABC Warehouse is still in business.

Same here. They acquired Hawthorne Appliance in Oakland County several years ago. Based on what I've read, Hawthorne went downhill big time after ABC took over.

I will say their store in Center Line - which used to be a very dated Farmer Jacks store - was pretty decent the one time I visited it. The store was clean and well organized. The salesman in the TV department was very courteous and was not pushy.

Wikipedia says ABC Warehouse now owns Mickey Shorr car audio. Had no idea. When did that acquisition take place?

[MasterB]

Same here surprised that ABC Warehouse is still in business I thought they would go out of business years ago.

[48125er]

My parents wanted to get an exchange on a new mattress because the one they bought was hard as a rock and now Art van wont honor the exchange, so their stuck with a hard mattress.

Bob's in Grand Rapids floor models are disgusting, they're all stained.

[innate-in-you]

A lot of the furniture in my house came from Art Van.

They are the middle-of-the road furniture store in terms of price point. Better quality merchandise than Gardner-White. Much more affordable than Gorman's. Not ghetto like La-Z-Boy. I am unfamiliar with Bob's Discount Furniture, other than their campy TV spots.

Bricks and mortar furniture shopping options have suddenly become much more limited around these parts. I like to examine the quality of what I'm purchasing when we're talking furniture-level price points. (By the way, IKEA does not appeal to me in the least.)

Art Van has made a number of strategic blunders in recent years. The one that really sticks out for me is their moronic decision to open a bunch of "Pure Sleep" stores. What, exactly, was the point? The long since abandoned "Paul's TV" was another blunder (very weak selection, no home audio, had to walk through the bowels of the store to get to what was hardly more than a kiosk).

The second is their complete failure to evolve the shopping experience. Instead of salesmen dressed in fancy suits descending on you like hawks the moment you step into the store, how about having your employees dress business casual instead? Design consultation? Missing in action! What about accent furniture, lamps, wall decor, etc.? Slim pickings, and the stuff that generally is available for sale is in the overpriced Clearance Center...err..."Outlet."

How about digital marketing and web presence? Every time I do a Google shopping search for furniture, Art Van NEVER appears in the results...EVER! In a world of Wayfair, Overstock.com, and Joss & Main, that is simply unacceptable.

Did anyone ever "LINE UP AT 9AM!!!!" to get freebies that were supposedly handed out to early bird shoppers? Those commercials were so outrageously tacky. I love how the retail chain whose employees wear expensive suits and neckties feature a prolifically pukey booth announcer who sounds like he worked at 103.5 The Blaze or 100.3 Pirate Radio in L.A. circa 1990.

The writing was on the wall long before Thomas H. Lee Partners took over. They thought for some reason making a shit sandwich with Art Van and a couple crappy chains out east would spell success. It was basically business-as-usual after Lee Partners acquired the chain. They should be faulted for not adapting the chain to 21st century shopping habits. I suspect any attempts to change culture & mindset were thwarted or simply were not attempted.

Paul's TV was Art Van's reaction to competing furniture/appliance stores who also started bundling flat-screen TV sets with furniture and/or home appliances.

Mass production of flatscreens and competition in the market drove prices down to the point where they started giving flatscreens away.

Art Van decided that since everyone else was including a flatscreen in their furniture or appliance deal, they had better throw TV into their product line, too.