Dive Brief:

• The U.S. arm of apparel maker and brand owner Global Brands Group filed for Chapter 11 with plans to sell off key assets.
• The company has a $17.3 million stalking horse bid for its Aquatalia brand. GBG USA is also looking to sell "a substantial portion of its remaining assets" in bankruptcy, including Ely & Walker, Airband, MagnaReady, Yarrow, B New York and Juniper unltd.
• The bankruptcy comes after the company sold off assets and inventory related to the Frye and Spyder brands. The brands' owner, Authentic Brands, recently reassigned those licenses to new operating partners amid Global Brands' financial turmoil.  

Dive Insight:

As GBG USA's own chief financial officer put it, the company entered bankruptcy "running on fumes" after COVID-19 hit apparel sales around the world.

The company's parent was once part of the Li & Fung supply chain conglomerate until it was spun off into its own company in 2014 that, until recently, traded on the Hong Kong stock exchange.

It both owns its own brands, and makes and sources products under licenses for other brand owners. Among the brands GBG USA owns are those the company is trying to sell in bankruptcy, while it licenses the All Saints, Le Tigre, Capezio and Saga brands. The company also makes private label products, including a footwear brand for Macy's. 

Around 85% of Global Brands' sales come from wholesaling, including to major retailers such as Macy's, Costco, T.J. Maxx, Amazon, Nordstrom, Dillard's, Burlington, Bloomingdale's and Neiman Marcus, according to GBG USA CFO Mark Caldwell. 

COVID-19's deleterious impact on the apparel industry has been well-documented. Customers avoided clothing stores as well as offices and social events that drive wardrobe spending. According to Caldwell, GBG USA's own sales fell 44% in the fiscal year that ended this March and included the most trying periods of the pandemic.

At the same time, the pandemic hit the company's supply chain, with manufacturers lacking capacity or materials, and distribution networks "increasingly backlogged," Caldwell said in court papers. All of that has been exacerbated by Global Brands' liquidity problems. Some of its suppliers, wary of Global Brands' financial struggles, have demanded cash on delivery and otherwise have tightened terms, deepening its operational and financial problems. 

Royalty obligations to brand owners are another burden on the company's balance sheet. Caldwell specifically pointed to guaranteed minimum royalties owed to Authentic Brands Group. While the licensing arrangement for Frye and Spyder was canceled after GBG sold assets related to the licenses, the company is still on the hook to the brand conglomerate for roughly $3.6 million, according to court papers. 

GBG also owes royalty money to Kenneth Cole ($6 million), Sequential Brands ($2 million) and Marquee Brands ($860,000).

Those figures highlight some of the hidden risks in the model championed by Authentic Brands and its intellectual property-gobbling peers. While the brand conglomerates outsource much of their operations and, with them, the liabilities to third-party partners like Global Brands, the brand owners' finances are intimately tied up with those of their partners. In its recent IPO filing, Authentic Brands disclosed that Global Brands was among its largest operating partners.

As Global Brands went into forbearance with lenders and came under greater distress, the company has been selling assets and looking to sell more. The company has signed 30 confidentiality agreements with prospective buyers of various assets, Caldwell said.

Out of that process came sales of assets related to the Authentic Brands-owned Frye and Spyder brands, as well as the stalking horse bid for Aquatalia from an LLC affiliated with investment firm Windsong Global. In bankruptcy, the company is essentially looking to sell itself off piecemeal.

GBG wants to give prospective buyers 50 days to submit bids for individual or packages of the company's brands.