Building #19 – New England Discount Store Chain – Files Bankruptcy, Plans Liquidation and Going-Out-of-Business Sales

On Friday, Building #19, Inc. and a number of affiliated companies voluntarily filed for chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of Massachusetts.  The companies operate a chain of ten (10) discount stores located in Massachusetts, New Hampshire and Rhode Island, selling a variety of goods, including food, furniture, giftware, house wares, clothing, shoes, domestics and mattresses.  The company explains the dire straits that it finds itself in as follows in court filings:

The advent of internet shopping has dramatically altered the retail landscape, particularly for so-called “big box” stores such as are operated by Building 19. As a result, Building 19s’ respective sales have declined. The decline in sales and the resulting losses, among other things, eroded Building 19’s working capital. Without sufficient working capital, Building 19 was left with little flexibility to make inventory purchases. Since much of Building 19’s inventory consists of surplus, salvage goods, overstocks, closeouts and irregulars that become available erratically, Building 19’s business model relies, in part, on having sufficient working capital on hand to make erratic inventory purchases. Building 19’s lack of working capital impaired its ability to capitalize on erratic opportunities to purchase inventory. The combined impact of declining sales, continuing losses and a lack of working capital forced the Debtors to file for Chapter 11 bankruptcy protection.

The companies are planning to close their stores and liquidate the store inventory through going-out-of-business sales.  Immediately upon filing for bankruptcy protection, they sought authority to enter into an agreement with Gordon Brothers Retail Partners, LLC to provide consulting services with respect thereto.  The companies explain the selection of Gordon Brothers in court filings:

The Debtors do not have experience in conducting GOB Sales, and have therefore determined that the retention of a liquidation consultant to provide advice regarding the conduct of GOB Sales will maximize the amount received from the sale of their inventory.

Prior to the Petition Date, the Debtors solicited proposals to conduct GOB Sales from various firms that specialize in asset liquidation. The Debtors received proposals from Gordon Brothers, Hilco Merchant Resources, LLC (“HILCO”), and Tiger Capital Group, LLC (“Tiger”), to provide consulting services to the Debtors for GOB Sales. The consulting fees proposed by Gordon Brothers and HILCO were substantially lower than the fee proposed by Tiger. Although the consulting fee proposed by HILCO is modestly lower than the fee proposed by Gordon Brothers, the Debtors believe that Gordon Brothers is better suited to provide the required consulting services because, among other things, (a) Gordon Brothers’ main office is located in Boston, and will therefore be able to more efficiently provide the required consulting services, (b) Gordon Brothers has extensive local knowledge of the Boston retail marketplace and customer base, and (c) the individual who would oversee the process for Gordon Brothers has twenty (20 ) years’ experience in the discount store industry. Subject to the approval of the Court, the Debtors selected Gordon Brothers as the best choice to provide the consulting services necessary to maximize the revenue generated by the GOB Sales.

Subject to the approval of the Court, the Debtor and Gordon Brothers have agreed to the form of a consulting agreement (the “GB Agreement”), a copy of which is attached as Exhibit A. The primary terms of the GB Agreement are as follows:

a. Services. Gordon Brothers will provide, among other things, the following services: (i) commencing immediately upon execution of this Agreement, recommend appropriate point-of-purchase, point-of-sale, and external and internal advertising and signage necessary to effectively sell all of the Merchandise (as defined below) in accordance with a “sale on everything”/”entire store on sale” at the Stores. Upon entry of an order approving the GOB Sales (the “Approval Order”), provide such recommendations will be in furtherance of the “going out of business” (or other mutually agreed upon themed) sale handle; (ii) provide qualified supervisors to assist and oversee the sales; (iii) evaluate and provide the Debtors with reports concerning sales of merchandise and expenses; (iv) evaluate and provide the Debtors with reports concerning sales of goods by IFC and Gee Zee (subject to the Debtors’ ability to provide Gordon Brothers with systems and administrative personnel necessary to allow for such evaluation/reporting); (v) recommend sale-related customer service and housekeeping activities; (vi) recommend sale-related staffing levels; (g) recommend sale-related loss prevention initiatives; and (vii) advise the Debtors with respect to the licensing requirements affecting the Sale as a “going out of business,” “store closing,” or other mutually agreed upon themed sale in compliance with applicable state and local “going out of business” laws (“GOB Laws”), to the extent applicable prior to the entry of the Approval Order; provided that, in connection with the GOB Laws and the sales: (A) the Debtors will consult with its own counsel; (B) Gordon Brothers will follow the directions of the Debtors (or its counsel); and (C) Gordon Brothers shall not be liable to the Debtors for any violations of the GOB Laws.

b. Term of the sale. The sales will terminate no later than December 8, 2013 (“Sale Termination Date”); provided however that either party may from time to time establish an earlier “Sale Termination Date” with respect to any one or more Stores (on a per Store basis) upon five (5) days prior notice to the other party.

c. Expenses. All expenses incident to the conduct of the sales and the operation of the Debtors’ stores (the “Store”) during the term of the sale shall be borne by the Debtors; except solely for any of “Gordon Brothers’ Controlled Expenses” that exceed the aggregate budgeted amount (as provided in Section 3(B) of the GB Agreement) for such Gordon Brothers Controlled Expenses.

d. Compensation. The Debtors shall pay to Gordon Brothers a “Consulting Fee” as one of the following (e.g., back to first dollar):

Aggregate Gross Proceeds        ////       Consulting Fee
Below $2,250,000        ////       0.75% of Aggregate Gross Proceeds
$2,250,000-$2,499,999        ////       1.00% of Aggregate Gross Proceeds
$2,500,000-$2,759,999        ////       1.25% of Aggregate Gross Proceeds
$2,750,000-$2,999,999        ////       1.50% of Aggregate Gross Proceeds
$3,000,000 and Above        ////       1.75% of Aggregate Gross Proceeds

In addition to all other compensation otherwise payable by the Debtors to Gordon Brothers, in connection with the Final Reconciliation the Debtors shall pay Gordon Brothers the sum of fifty percent (50%) of the savings between the actual expenses incurred for the Gordon Brothers Controlled Expenses the budgeted amount for the Gordon Brothers Controlled Expenses set forth on Exhibit B to the GB Agreement.

6 Replies to “Building #19 – New England Discount Store Chain – Files Bankruptcy, Plans Liquidation and Going-Out-of-Business Sales”

  1. Dont be blaming the internet for going out of business.The stores became stale. same old crap on the shelves each time you went in. instead of moving it out and getting new stuff in they let it sit and then claim they had no money to buy new stuff. Mark it down to cost, get your money back and buy something else.

  2. The internet is a “red herring”: most items sold by B-19 were sold at prices so competitive, that shipping costs killed competition from similar goods “on the internet”. Further, large, heavy items, e.g., carpets and furniture, are very costly to ship. The business failed because the owner(s) plainly took-out too much cash from the business, so lacked a cash cushion to support the business, when good items were scarce. That likely explains why once-full shelves were replaced by a ever-fewer items, that seemed to gather dust. This was a great business, ruined by owner greed and/or poor management.

  3. The owners son was given the company years ago and never wanted to run it! Ask any long term employee and they will tell you he ran it into the ground!

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