Will Sports Authority get KO’d in court fight with vendors?
Sports Authority and many of its vendors have a case of the “sue me, sue you blues.”
According to a Wall Street Journal report, the bankrupt sporting goods chain has filed countersuits against more than 160 vendors. The suppliers are seeking the return of their consigned merchandise rather than see the goods sold off in liquidation sales at 140 stores Sports Authority is in the process of closing.
Earlier this month when Sports Authority filed for Chapter 11 protection, it was granted permission to continue selling consigned goods under the provision that it put the sales proceeds into escrow. Some vendors, however, are concerned that Sports Authority will pay banks first and that, in the end, they will be shortchanged.
Sports Authority argued in court this week that its business would be decimated if it were forced to stop selling the consigned products. The footwear and other products in dispute are valued at $85 million, according to the Journal’s reporting.
Having heard the retailer’s arguments, a judge presented Sports Authority with three choices for moving ahead:
- Comply with vendors’ requests and return merchandise;
- Return to the original agreement between the parties and pay vendors as previously agreed;
- Settle with suppliers.
Sports Authority has agreed to comply with the original terms of the agreements it has with the vendors.
- Sue Me, Sue You Blues – George Harrison/YouTube
- Sports Authority Plays Hardball in Suits Against Suppliers – The Wall Street Journal (sub. required)
- Sports Authority Sues Dozens of Suppliers – CFO
- Sports Authority Sues Suppliers In Cagey Credit Move – PYMNTS
- Does Sports Authority’s bankruptcy illustrate a big box problem? – RetailWire
Photo: Sports Authority
Discussion Questions
DISCUSSION QUESTIONS: Do you side with Sports Authority or its vendors in the dispute over consigned merchandise? Do you see a way back for Sports Authority from its current predicament?
Poll
BrainTrust
Ryan Mathews
Founder, CEO, Black Monk Consulting
Ed Rosenbaum
CEO, The Customer Service Rainmaker, Rainmaker Solutions
Look, in a bankruptcy vendors lose, that is a universal truth. The only viable question is whether they lose a little or a lot, and that depends on their lawyers.
Having worked in one or two of these situations you quickly learn that “fair” has very little to do with how they resolve themselves. The skill of the bankruptcy recovery team, the legal talent on both sides and the cleverness and aggression — or lack thereof — on the part of the banks all have much greater influence on the final outcome.
So it isn’t a question of which “side” you like, it is a question of which “side” better manages the process.
Can companies come back from bankruptcy? Sure, again, if they’ve gotten the proper tutelage. Do vendors recover 100 cents on the dollar? Not too often.
I didn’t know Donald Trump owned Sports Authority!
This may give us a clue as to why SA is going down. Perhaps a culture of anger has been part of the company all along. If so that explains a lot of things.
Sports Authority was a much different company when it was founded and based in South Florida. Now with new ownership thinking, maybe greed and stiff competition, the rules of engagement have changed. I agree Sports Authority needs the goods to be able to recoup some of what they are going to lose. On the other hand, the vendors have every right to be concerned about where the money is going to go. This is a no-win situation. Sports Authority will be gone. So will the vendors, merchandise and money. Does anyone have any doubts the Sports Authority management team will not walk away with everything due to them? In this case the old expression “buyer beware” has now changed to “seller beware.”
I side with the consignment vendors as they are the owners of the merchandise. Consignment is different than a retailer buying and owning merchandise. In theory, when the consigned merchandise is sold is when the vendor transfers ownership to the consumer. The retailer is simply the agent. Should a retailer sell consignment merchandise at liquidation prices without the vendor’s permission, the retailer is still liable to pay the vendor the full price. Consignment vendors should be in front of all lenders as the retailer does not own the merchandise. Vendors are generally non-secured and therefore lower on the payment list.
Who owns the merchandise? What agreements did Sports Authority have with vendors before declaring bankruptcy? Consignment means that Sports Authority may not own the items. We cannot answer these questions without knowing the details of the prior agreement.
What a mess. Nobody wins here and the battle to minimize losses has just been squandered to the costs of litigation. So what we take from this lesson is how to make a bad situation far worse.
The comments already posted make the point that no one can answer the question of how vendors will fare without reading their consignment agreements with Sports Authority. Historical bankruptcy proceedings tell us that the vendors will not fare too well.
I am interested to know if Under Armour is one of the brands fighting to recover its goods. At some point in the past, Sports Authority tied its fortunes to the UA brand as its merchandise seemed to take over the store, squeezing even Nike to the side. Together with their bleak in-store merchandising, I think the over-emphasis on UA might have contributed to SA undoing.
As goes UA, so goes SA. In that one vendor case, I think their fortunes in retail are closely tied.
If the consignment vendors own the product, then before liquidation begins the product should be returned to the vendor. I hope Sports Authority isn’t counting on the liquidation proceeds from the 140 closing stores to fund future business operations in their other stores. Any consignment goods should be made whole by Sports Authority because they didn’t own the goods so they had no right to liquidate them.
Now, what do the lawyers have to say about that? I have no clue.