Restructured Gym Equipment Supplier in Ch. 11 Bankruptcy

The Bottom Line:    

As Interim CEO/CFO and strategic advisor to a bankrupt gym equipment supplier, Stapleton Group guided the company through a successful reorganization under Ch. 11 Bankruptcy. Key actions leading to the company returning to cash flow positive included:

• Assessing the company’s options for its stakeholders, including outside investors and lenders, then demonstrating the projected outcomes of an orderly liquidation plan vs. supporting a growth plan.
• Reorganizing management into a much smaller, higher functioning team.
• Reducing fixed overhead expenses, including moving from a leased warehouse to 3PL model.
• Eliminating product lines and liquidating inventory through inventory closeout sales.

The Business Issue:

The company was founded during the Covid pandemic to fulfill unusually high demand for home gym equipment by supplying dumbbells and kettlebells to major retailers. Its founding shareholders financed the company’s rapid growth by borrowing over $20 million from a private lender at high interest rates. When demand for gym equipment fell sharply in 2022 and major retailers canceled purchase orders overnight, the company’s management did not adjust purchases resulting in approximately $15 million in excess inventory stored in the US, Mexico, and China.

Genesis of Stapleton’s Engagement:    

Having lost confidence in the management team and with over 10 million pounds of exercise equipment deteriorating in its warehouses in the U.S. and Mexico, the company’s outside investors and lenders retained Stapleton Group to bolster management’s efforts to restructure the company. However, management’s continuing failure to communicate effectively with the investors and lenders resulted in a toxic, contentious relationship and the company’s founders chose to file Chapter 11 bankruptcy in December 2022.

Obstacles and Stapleton’s Solutions:

• Company founders, who comprised its executive team, were uncooperative, blocking communication and information transfer to the lenders, Stapleton, and the CRO hired after the Ch 11 bankruptcy filing.
  • Stapleton was engaged by the company’s lenders to take over the company as Interim CFO & Interim CEO, working with the CRO to help coordinate and facilitate information flow during the Ch. 11 Bankruptcy and turnaround the company into a profitable entity.
  • Stapleton helped the lenders negotiate the exit of the founders early in our engagement.
  • The lenders took over ownership of the company after the ill-advised Ch. 11 bankruptcy filing.
  • Stapleton developed and implemented a methodology to prioritize initiatives and coordinated the executive team to vote and agree on tackling the most important initiatives. 

• The company’s remaining management team was not empowered and lacked accountability.
  • Stapleton implemented operational metrics meetings to align and inform the company’s lenders.
  • Stapleton implemented weekly calls with the board of directors to provide updates and communicate newly discovered issues.
  • Stapleton restructured the team and sharply reduced overhead. 

• Lack of Inventory planning and control.
  • Stapleton developed and helped implement detailed sales forecasts by SKU, as well as inventory planning and management tools.
  • Stapleton developed models to help understand excess and obsolete SKUs based on current demand.
  • Stapleton analyzed competitive pricing and helped fine-tune the pricing and discounts on all SKUs.
  • Stapleton implemented cycle counting in the different warehouses.
  • Stapleton successfully negotiated the purchase of fresh and sellable inventory from a Chinese vendor using ~ $300K in forgotten deposits made by the company’s founders.  

• Lack of credible financial reporting.
  • Stapleton implemented 13-week cash flows & financial projections.
  • Stapleton negotiated with multiple domestic and international product suppliers who were critical to the company’s survival.
  • Stapleton successfully negotiated and implemented new administrative services for banking, insurance, etc.
  • Following the company’s exit from Ch. 11 bankruptcy where the lenders converted their debt to equity, Stapleton advised the owners of their strategic options and recommended a small investment in a popular new product to reestablish customer relations, and to expand its customer base toward becoming a profitable company. 

• Landlord gave 3-months’ notice to move locations.
  • Stapleton recommended not negotiating with the landlord and instead moving to a third-party logistics (3PL) warehousing and fulfillment service.
  • Stapleton evaluated and negotiated terms with a nationwide 3PL provider.
  • Stapleton successfully searched and negotiated new sublease with landlords.

Contact Mike Bergthold at (213) 404-0113 to learn more.

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