City Sports’ move into suburbs to blame for bankruptcy, CEO says
The fate of City Sports was sealed when it deviated from its strategy to expand to suburban markets, its chief executive said in an interview Thursday.
Marty Hanaka said that his company’s opening of several stores in far-flung suburbs like Manhasset, N.Y., and Rockville, Md., proved to be the big money-loser that led to its bankruptcy filing last month.
“Those stores had very, very high rent expenses, and they really fell short of their anticipated volume,” said Hanaka, a longtime retail executive and investor in City Sports who became its chief executive less than three months before it filed for bankruptcy.
Suburban markets present a different level of competition, he said.
“You’re going up against numbers of competitors with great big boxes, much more marketing spending,” he said.
After initially hoping to close eight of its stores and sell 18 for a new owner to operate, City Sports confirmed Wednesday that all 26 of its locations would be closed by the end of the year. Hanaka said investors had expressed interest in continuing to operate the chain’s remaining 18 stores, but with the holiday shopping season coming up, no one could top the offer from Hilco Merchant Resources LLC, part of Hilco Global of Northbrook, Ill., and Gordon Brothers Retail Partners LLC of Boston, which plan to liquidate the remaining stores’ inventory by the end of the year.
The companies offered roughly $17 million for most of City Sports’s assets, an amount that is subject to certain conditions and sales targets, according to court documents. That money will go to repay creditors, who are owed $39.6 million, according to court filings. Hanaka said at least two buyers had expressed interest in buying out the leases of individual stores, and any unsold leases would be returned to their landlords.
“The market has really changed dramatically in this space,” Hanaka said. Because of recent growth among specialty retailers like Lululemon Athletica Inc. and Athleta, a women’s fitness brand owned by Gap Inc., “there’s just lots of other places you can buy this stuff,” Hanaka said.
Hanaka said his chain’s reliance clothing and footwear — about 75 percent of sales — put it in direct competition with those so-called “athleisure” vendors, such as Lululemon, that sell athletic style clothes for everyday wear. The company’s chief financial officer previously said in a filing that severe weather and the store’s reliance on major athletic brands hurt its business because consumers could buy them elsewhere.
Hanaka added that the company’s sales were strong during the 2014 World Cup, when fans flocked to buy jerseys and cleats, but that event is held only every four years and the company couldn’t make up the difference in 2015.
The asset sale was set to be finalized in Delaware bankruptcy court Thursday, and attorneys for City Sports said in a filing that the parties had agreed on the sale. Going-out-of-business sales are scheduled to begin Friday.