Sharper Image Seeking Store Liquidators

Mar 08, 2008 6:43 AM  By

High-tech gadgets and gifts merchant Sharper Image, which filed for Chapter 11 bankruptcy protection on Feb. 19, is seeking court approval to hire a liquidator to conduct store-closing sales at more than half of its retail locations.

Officials for the San Francisco-based company said in a court filing with the U.S. Bankruptcy Court for the District of Delaware that they want to auction off the right to conduct the store-closing sales to a liquidator on March 13. A liquidator would ensure “the most feasible, economical and efficient means of achieving the disposition of the merchandise” at its stores, according to the filing.

Before Sharper Image filed for Chapter 11 protection, company executives examined the performance of 184 of its stores in 38 states and the District of Columbia. They determined that 96 of the stores and one of its distribution centers are unprofitable.

The company said that not only would the store-closing sales reduce the costs associated with the underperforming stores, they would help the company reduce any debt outstanding under a pre-bankruptcy loan, as well as a debtor-in-possession loan with Wells Fargo Retail Finance.

For the fiscal year ended Jan. 31, Sharper Image’s total sales fell 26%, to $374.9 million, compared to $506.7 million one year ago. The bankruptcy court has authorized the cataloger/retailer to use $35 million worth of financing from Wells Fargo to operate its business while it restructures.

“Bankruptcy allows the retailer to get out of bad locations and leases,” says Stuart Rose, managing director with Wellesley, MA-based investment firm Tully & Holland. “A liquidator has expertise in this area and so it makes sense to hire one. I would call this standard operating procedure for retailers in Chapter 11.”

Lee Helman, managing director of New York-based investment firm Financo, agrees: “The liquidator will sell the inventory quickly and orderly and pay Sharper Image after taking its cut, and Sharper Image will get out of those leases through the various routes possible.”

What’s next for Sharper Image? Strategic buyers could do anything from buying the remaining bankrupt estate, to cherry-picking leases to assume, and picking up the catalog and Web assets, to merely acquiring the intellectual property of the business, Helman says. “Who shows up and how much they offer and deliver to the estate for the benefit of creditors will determine which paths are ultimately pursued.”

In other Sharper Image news, the U.S. Bankruptcy Court for the District of Delaware on March 6 approved the company’s request to continue its gift certificate program in a modified manner. Gift cardholders may now redeem them, but only if they are making a purchase for twice the value of the gift card.

For example, if a customer has a $50 gift card, he or she has to make a purchase of at least $100 to use the card.

Court documents say that by honoring gift cards and merchandise certificates in this manner, Sharper Image hopes to maintain and preserve the loyalty of its customer base. The retailer told the court that its customers typically spend more than the value of the gift card if redeeming one.

Sharper Image no doubt wants to prevent its gift-card holders from redeeming them it its competitors. Rival Brookstone announced on Feb. 27 that Sharper Image gift cardholders could exchange them at its store locations for a 25% off in-store coupon. It will continue the promotion even after the court’s decision, according to Brookstone spokesperson Robert Padgett.

And PurePro, manufacturer/marketer of the PurePro air purifier, said it would accept Sharper Image gift cards of any denomination as a $50 coupon toward its products.