Keeping a business afloat is not always an easy matter, particularly when developments in the market change the way consumers shop for goods and services. Businesses that fail to keep up with these changes eventually end up with poor performance and possibly significant financial burdens. This is particularly true for companies that have failed to adapt to the shift toward online retail.
A recent bankruptcy case which seems to fit this description involves Sports Authority, one of the big retailers in sporting goods. The company filed for Chapter 11 bankruptcy last week, citing challenges in the retail industry which resulted in significant debt from borrowing intended to keep the business afloat. According to court documents, the company will reportedly be receiving nearly $600 million to continue running the business during bankruptcy.
As part of the company’s reorganization plan, it will be selling nearly one-third of its store locations (about 140) in an effort to shore up its resources. Even before the company has begun to implement the plan, some critics are saying it is evident that the same poor business strategy that got the company into trouble is at play in its reorganization efforts. These critics say that, if competition from online retail largely brought about the company’s financial woes, the only viable path forward is to expand its presence in the online retail market. And yet the reorganization plan doesn’t seem to address the issue.
There is probably room for disagreement about what path the company should be taking post-bankruptcy. For our purposes here, it is enough to simply point out that Chapter 11 can provide a great opportunity for a struggling business to become competitive again, but laying out a viable path forward is critical and should be done in consultation with good legal and business advice.