Dive Brief:

• Furniture retailer and wholesaler Heritage Home Group, which owns the Thomasville & Co. retail and wholesale brand, filed for Chapter 11 bankruptcy this week, hoping to sell off assets in the court process.
• The company, formed out of the Furniture Brands' 2013 sale in bankruptcy to private equity company KPS Capital Partners, faced years of declining sales leading up to bankruptcy, Chief Financial Officer Robert Albergotti said in a court filing. Sales for the first five months of 2018 were down 27% year over year, he added.
• The company filed for bankruptcy with a $17.5 million stalking horse bid from a subsidiary of Century Furniture for its luxury business after signing 90 confidentiality agreements with interested parties, according to court documents. Albertgotti said the company is also negotiating with a potential buyer for the bulk of its remaining business, including its Broyhill and Thomasville units.

Dive Insight:

Heritage Home has gone through several rounds of cost cuts in an attempt to right its business, and they still weren't enough as sales fell due to heavy competition, changing consumer habits and concerns among furniture retailers about the company's business since the 2013 bankruptcy. 

Albergotti said the company, facing relentless sales declines, reduced its cost structure by $300 million through "greater spending discipline" and reduced overhead and administrative costs. To free up cash, it sold its Lane furniture business last year and restructured its remaining business. This "reduced the complexity of the company's brand portfolio" and "sharpened its focus on the growth opportunities for its remaining brands," Albergotti said.

The company's brands and business units go back much further than the company itself. Thomasville was founded in 1904, for example. Furniture Brands was formed more than 30 years ago to bring together Thomasville, Broyhill and Lane. By the early 2000s, the business was doing more than $2 billion in sales, according to Albertgotti. In the year before it was bought and turned into Heritage Home, the company was still doing nearly $1 billion in sales.

In recent years, the company's private equity owners were investing in the company to keep up its liquidity and keep it solvent. Even so, the continued sales declines continued to squeeze the books. At the time of filing, Albertgotti said Heritage Home had less than $500,000 in cash and couldn't draw anything from its loan revolver.

In Chapter 11, the company has an agreement from PNC to provide it with a bankruptcy loan so that it can keep operating while it runs auctions on its assets and business units. The process would provide cash to pay off lenders and could keep the brands alive under a new parent.

Bankruptcy sales are common outcomes in Chapter 11. Recently, Nine West has taken the same approach, selling off its eponymous and Bandolino brands to Authentic Brands Group, and is reportedly looking to sell off its remaining brands. The moves free up cash and, in the case of the ABG acquisitions, expand the reach of those brands.

In fact, retail history is full of failed retailers that found second lives as e-tailers, product labels or vastly downscaled retailers. For Heritage Home, the ultimate acquirer of its business units in bankruptcy auctions will determine the future of those brands.