Sports Authority suing vendors over consignment sales

Dive Brief:

Sports Authority, which filed for bankruptcy protection earlier this month, has filed lawsuits against some 160 of its suppliers over consignment sales totaling $85 million worth of shoes and other goods, the Wall Street Journal reports.
Sports Authority is fighting supplier demands to sell their goods, saying that doing so would hurt its operations as it struggles to regroup, and it is scouring contracts for ways to get out of some requirements.
Sports Authority’s position was undermined Wednesday by bankruptcy Judge Mary Walrath, who told the sportswear retailer that it will have to comply with consignment vendor demands to return their goods, reinstate arrangements that existed before bankruptcy to continue payments, or settle with them. “I think you have to make peace with them,” Walrath said, according to the Journal.

Dive Insight:

This fight promises to further weaken Sports Authority as it attempts to mount a turnaround plan under bankruptcy protection. If those protections fail to settle this consignment issue in its favor, the retailer could lose some $4 million to $5 million in sales if it’s forced to set aside those goods or return them to vendors.

Suppliers like Asics stand to lose significantly if Sports Authority prevails. Asics alone is owed some $23 million according to court records, the Journal reports.

One potential winner is Sports Authority rival Dick’s. According to the Wall Street Journal, Deutsche Bank analysts said last week that Dick’s could absorb 20% of sales that would have gone to Sports Authority stores that close. Deutsche Bank said that Sports Authority's plans to close 140 stores could boost Dick’s annual sales by more than 2%, and if Sports Authority liquidates entirely, Dick’s sales could be boosted as much as 7%. Sports Authority is reportedly in talks to sell stores and assets to prospective buyers including Dick’s and Modell's.

Sports Authority is at least $643 million in debt, according to reports, and will receive up to $595 million in bankruptcy protection from lenders including Bank of America, Wells Fargo & Co., J.P. Morgan Chase & Co. and TPG. Sports Authority is under threat of shutting down completely if it fails to find a buyer in the upcoming weeks.

Details of Sports Authority's struggles emerged early last month, when Bloomberg said that the retailer was in talks with bondholders. News of missing payments to suppliers and a failure to pay a $20 million interest payment soon followed, as well as store closings and employee layoffs.

In a statement from CEO Michael Foss announcing Sports Authority's bankruptcy, the retailer said it will close or sell around 140 stores and two distribution centers in the coming months as part of the process. Foss told the Denver Post that the company also plans to let go around 3,400 of its 15,000 employees.