L.A. Retail Liquidators are Booming as Others Go Bust
By DEBORAH BELGUM
When McCrory Corp., one of the country's last five-and-dime store chains, decided to close 200 of its stores earlier this year following a bankruptcy filing, it turned to the Buxbaum Group.
Three months later, Buxbaum had orchestrated a going-out-of-business sale, selling $54 million worth of knickknacks to bargain-hungry customers for $29 million.
The end result was that Pennsylvania-based McCrory was able to turn its inventory into cash, close its stores and return to bankruptcy court to pay off some of its secured lenders.
Buxbaum is one of the nation's seven major retail liquidators, three of them in Southern California, being called upon in recent months by a growing list of chain stores either filing for bankruptcy or closing their doors.
Business is so good for Buxbaum that it recently moved from Encino to Calabasas, nearly doubling its office space. "We needed more space to grow," said Paul Buxbaum, president and chief executive of the company founded in 1973. "Our staff has grown by one-third in the last 14 months."
Other local companies include The Nassi Group in Westlake Village and Great American Group in Woodland Hills.
When Krause's Furniture Inc. decided to close 88 of its stores last fall following a bankruptcy filing in July, it also turned to Buxbaum to liquidate its merchandise. Buxbaum staged a sale in eight states, selling $40 million worth of couches, chairs, and coffee tables for $17 million.
Growing troubled list
This small group of retail liquidators come into bankruptcy court, make a bid for a company's inventory, purchase it, and then quickly sell it to recoup their costs. They also estimate the value of inventory when retailers are trying to restructure or negotiate an asset-based loan.
Retail liquidators have worked with Orange County-based House 2 Home to close its stores. Other chains that shuttered their doors include HomeLife Corp., a furniture store once owned by Sears, Roebuck & Co., which closed all 130 of its stores, kitchenware retailer Lechters Inc., which closed more than 240 stores, Montgomery Ward, which closed 250 stores, and Kmart Corp., which closed 283 stores as part of its bankruptcy filing.
The rapid decline in these chains has boosted revenues for the Buxbaum Group and the six other major liquidators by between 10 and 20 percent in the last year. In 2001, industry analysts estimate that the "Magnificent Seven" disposed of $6 billion in inventory.
Competition among the seven is high. But often times when a retailer needs to quickly get cash for its inventory, two or three of the companies will work together.
Nassi Group and Great American Group won the bid this year to close out more than 40 stores operated by Casual Male Corp., which filed for Chapter 11 bankruptcy protection in early 2001 and was sold to outlet retailer Design in May this year.
All seven worked together to quickly close the 283 Kmart stores the chain needed to shutter to restructure its finances.
However, once finished with a deal, the companies are back jostling for the same accounts, going into bankruptcy court to outbid each other by pennies on the dollar.
"It is pretty cutthroat," admitted Rick Briggs, senior vice president of Nassi Group. "This industry has a great deal of operational risk because we are moving tremendous amounts of inventories through a short period of time. You lose a day, it's significant."
It's so competitive that the liquidators don't like to divulge their revenues, their staffing numbers or the accounts they are working on.
They will say that business is very cyclical, like the retail industry. Liquidators are busiest during the first and last part of the year.
That's because if retailers can make it through the summer, they have a better shot of hanging on during the lucrative back-to-school and holiday season.
Great American Group weathers the slowdown with a wholesale industrial division active all year auctioning distribution facilities and industrial equipment. "The wholesale industrial division is doing brisk business," said Andy Gumaer, executive vice president of Great American. Earlier this year, Great American auctioned off the distribution facilities once owned by Webvan, the online grocery store that went out of business last year.
"Our business," Gumaer said, "is going to do quite well over the next couple of years."
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