Dive Brief:

• Regional home goods retailer Furniture Factory Outlet filed for bankruptcy Thursday citing tight cash and supply chain disruption related to the COVID-19 pandemic.
• The company, owned by private equity firm Sun Capital Partners, is looking to sell itself as a going concern in Chapter 11.
• Furniture Factory has a stalking horse bid of $7 million from retailer American Freight, which earlier this year absorbed the Sears Outlet name.

Dive Insight:

Furniture Factory Outlet, founded in 1984, operated 68 stores spread across the Midwest and southern central states prior to the spring store closures forced by COVID-19. The financial pain brought by the pandemic forced it to permanently close 37 locations this year, leaving 31 stores in Arkansas, Missouri, Oklahoma, Kentucky and Indiana, CFO and COO Donald Roach said in court papers. 

Going into the year, Furniture Factory had new leadership and was making progress on a turnaround strategy to boost its brand and strategic direction. But the spring closures "dropped the Company's revenue to nearly zero overnight," Roach said. 

The company had to lay off 95% of its workforce and exit stores to raise cash. While reopenings met expectations, revenue was lower with the reduced store count, and the retailer's supply chain has faced ongoing challenges created by the pandemic and weather events.

"Raw materials have been harder to acquire, which has impacted manufacturers' ability to produce goods," Roach said. "The pandemic has also impacted manufacturing safety which has lessened the amount of finished goods available." All of that means the retailer's revenue has been "choked by the lessened inventory supply chain," Roach added.

The retailer went searching for a buyer in the months leading up to its Chapter 11 filing, hiring investment bank FocalPoint Securities, which contacted some 121 potential buyers, three of which met with management. But even as the company negotiated a deal with American Freight, it lacked long-term liquidity, forcing it into bankruptcy. The company also carries $49.4 million in funded debt going into the bankruptcy. 

Furniture Factory joins more than two dozen retailers to file for bankruptcy in 2020, which could be a record year for filings from industry players. The retailer played in a category that got a boost from the pandemic, but likely lacked the scale and online prowess of other major players in home goods, such as Wayfair and Target, to compensate for the closures.

The Chapter 11 marks another retailer owned or previously owned by Sun Capital that has gone bankrupt. According to Retail Dive research, the financial firm has seen the most retail acquisitions go bankrupt of any private equity company, with Furniture Factory Outlet marking the seventh retailer to file after being acquired by Sun Capital.