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Liquidator running sales at all Performance locations

Published December 3, 2018
ASE said the sales don't mean all stores will close.

DURHAM, N.C. (BRAIN) — The company hired last month to run liquidation sales at 40 Performance Bicycle stores has expanded those sales to the chain's 62 remaining stores.

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Performance's parent company, Advanced Sports Enterprises, filed a petition for Chapter 11 bankruptcy protection on Nov. 16.

On Thursday, ASE filed an amended store closing agreement with Gordon Brothers, the Boston-based firm that was hired to conduct "inventory clearance" or "store closing" sales at 40 stores identified as being unprofitable. The amended agreement adds the remaining 62 Performance stores to the agreement (Performance had 104 locations when it filed for bankruptcy on Nov. 16, but two stores were already in the process of being closed at the time) with sales at the additional stores beginning as early as Saturday, Dec. 1.

Managers and employees at Performance locations learned of the expanded sale plan on Thursday, and some told BRAIN they were dismayed because they had believed ASE planned to maintain at least some Performance locations following the restructuring. They told BRAIN they viewed the start of the sales at all locations as proof that ASE plans to close all of them.

"This suggests to me that there was no intention to continue the chain," one Performance employee told BRAIN. Store employees said ASE officials told them the sales were going so well at the initial 40 locations that they wanted to expand them to other locations during the critical holiday period.

ASE's CEO, Pat Cunnane, said the sales expansion does not indicate all the stores will be closed.

"Currently, this is more about inventory liquidation rather than store closure," he said in an email to BRAIN. "Whether a store is ultimately closed is a function of concessions that we may obtain from landlords and the marketplace of potential bidders. This process will enable us to determine which stores are the most valuable to the business.

"We are trying to renegotiate leases and we believe this helps," Cunnane added. "So, this is actually in pursuit of maintaining as many stores as possible. Still, we continue to work through many obstacles and we don't know what stores will remain open until the occupancy costs are known."

He said other retailers have expressed interest in buying some Performance locations, so some stores may close as Performance locations and reopen under another name.

Gordon Brothers is contracted to run sales at the initial 40 locations for 12 weeks ending Jan. 27. Sales in the other 62 locations are set to run until Feb. 28. Sales may end sooner at some locations if the stores are sold or the remaining inventory is consolidated with other locations.

Under the initial agreement, Gordon Brothers would operate a "themed sale" that can be promoted as "inventory clearance" or "store closing" sales as mutually agreed by Gordon Brothers and ASE. Cunnane said ASE was still negotiating with the court about the language used to describe the sales at the additional stores. This weekend, sales at the additional 62 stores did not include any language about store closings, he said.

Gordon Brothers' budget for the sales is $2.1 million, including $1.1 million to be spent on advertising. ASE's total budget for the sales period, including rent and payroll and the Gordon Brothers budget, is $12.8 million. Among other compensation, Gordon Brothers will receive a tiered incentive payment tied to the percentage of the inventory's cost that is recovered through the sales.

Gordon Brothers is consulting with ASE on ways to maximize the value of the remaining inventory, including making some store inventory available online. Some Performance store employees told BRAIN that they were being told to box up 2019 model year bikes and send them back to the Performance warehouse.

ASE wants to extricate itself from Ideal contracts

In its Nov. 16 filings, ASE asked the bankruptcy court to release it from some trademark licensing, marketing, and manufacturing contracts with Ideal Bicycle Corp., the Taiwan-based manufacturer that has historically been a major investor in ASI and ASE, as well as the manufacturer of many of its bikes.

The contracts date to as early as 2001, although some were updated and extended as recently as 2017.

Three days before ASE's filing, Ideal had sent a letter demanding payment of $12.5 million in trade debt and said it would terminate outstanding purchase orders on Nov. 15 unless the situation was rectified. ASE did not responded to the demand.

ASE has told the court that the agreements with Ideal are no longer necessary to continue operations and said they make it more difficult to sell its assets. It said ending the licensing agreement increased the value of the trademarks that ASE owns. Ending the agreement would bar Ideal from selling products with any of the ASE trademarks — even products that are already in Ideal's inventory — in any markets.

Cunnane told BRAIN that ASE had to protect its trademarks to ensure its products were sold only through ASI-authorized dealers.

The court will hold a hearing to consider the motion on Dec. 6 if anyone objects to it. If no one objects by the end of day Monday, Dec. 3, the court will consider the motion without a hearing. As of Sunday evening, no one had objected.

Landlord objections, auction plans

Multiple Performance store landlords have asked the court to modify ASE's proposed auction process to give the landlords time to object to terms of the auctions affecting their leases. ASE has proposed that the auction begin on Dec. 19, with Dec. 16 set as a deadline for ASE to notify bidders of qualified bids.

The landlords are proposing they be allowed 14 days to review and object to bids that affect their leases before the bids are accepted. They also want the ability to bid on their own leases without being subject to the same vetting process as other bidders.

As of Sunday evening ASE had not filed a response to the landlords' objections and proposals and the court had not ruled on the landlords' request.

Besides the store leases, the auction will include all of ASE's remaining assets, including the ASI distribution business and its brands, which include Fuji, Breezer, Kestrel, SE Bikes and Oval Concepts. The various parts of the business could be sold separately or in bundles, depending on the bids received.

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