Bankrupt Home Depot rival reaches sale agreement to remain open

According to The Street, During the COVID-19 pandemic, home improvement retail chains experienced a surge in business as consumers, confined to their homes, focused on home improvement projects and renovations. This boom provided much-needed relief to retailers, some of whom had been struggling before the pandemic.

However, as businesses reopened and people returned to in-person work, the demand for home improvement products dwindled. With less free time for home projects, combined with rising inflation and high interest rates, some home improvement retailers faced significant financial challenges. These factors led several chains to file for bankruptcy, either to reorganize or to close their stores.

Notable Home Improvement Chain Closures

While the liquidation and closure of home improvement chains are relatively rare, recent years have seen some major players exit the market. In January 2024, historic paint retailer Kelly-Moore Paints shut down all 157 of its locations and furloughed approximately 700 employees in an out-of-court wind-down of its operations. The company’s financial struggles stemmed from its inability to bear the cost of future asbestos claims after having already paid out around $600 million.

Another significant player, LL Flooring, filed for Chapter 11 bankruptcy on August 11, 2023, in the U.S. Bankruptcy Court for the District of Delaware. The company, impacted by the post-pandemic slowdown in the housing, repair, and remodeling markets, initially sought to sell its assets through a Section 363 bankruptcy sale.

LL Flooring’s Shift from Liquidation to Sale

Although LL Flooring initially planned to liquidate and close more than 400 of its stores across 47 states after two stalking-horse bid proposals fell through, it reversed course. Negotiations with F9 Investments led to a finalized agreement just days after the collapse of the earlier bids.

On September 5, 2023, LL Flooring reached an asset purchase agreement with F9 Investments’ subsidiary, F9 Brands. The deal was filed in court on September 6. Under the agreement, F9 Investments offered a fixed purchase price of $1 million, with an additional inventory valuation set at 57% of the landed cost value, and it agreed to assume cure costs and other liabilities.

F9 Brands also committed to supporting the employment of up to 1,000 workers and proposed acquiring up to 219 LL Flooring stores, along with the Sandston, Virginia distribution center. The company will continue to operate as a going concern, ensuring the survival of the remaining stores.

Despite this agreement, LL Flooring will still close approximately 211 stores, with liquidation already underway at those locations.

Next Steps in LL Flooring’s Bankruptcy Process

The parties involved have scheduled a sale hearing for September 16, 2023, with Judge Brendan L. Shannon overseeing the proceedings. If approved, the transaction could close by the end of September, marking a significant step in LL Flooring’s effort to emerge from bankruptcy and maintain its operations under new ownership.