The furniture retail sector has faced economic issues that have caused retailers to have financial distress, leading to closed stores and bankruptcy filings.
A slowdown in the real estate market in recent years, driven by increased interest rates since the Covid-19 pandemic, has curtailed consumer spending on new furniture.
When people move into a new home, they often buy new furnishings for each room in their home.
As real estate sales slow down, so do furniture purchases.
Related: Distressed health care company files for Chapter 11 bankruptcy
Fierce competition between major brick-and-mortar furniture retail chains like IKEA, Ashley Furniture, and Ethan Allen, and independent retailers has resulted in certain smaller companies closing stores and, in some cases, filing for bankruptcy.
Top brick-and-mortar furniture retailers:
- IKEA
- Ashley Furniture
- Ethan Allen
Some independent furniture retailers that were forced to file for bankruptcy recently include 5th Avenue Furniture, which closed two stores in Shirley, N.Y., and Medford, N.Y., in recent years and filed for Chapter 11 bankruptcy on June 6 on behalf of its Bay Shore, N.Y., location.
Furniture manufacturers have filed for bankruptcy to reorganize and sometimes close down, as well.
Furniture manufacturer plans to shut down its business
North Carolina furniture manufacturer and supplier Progressive Furniture, which provides products to major retailers, decided to close down its business at the end of the year after its primary supplier in Mexico decided to close its business.
Another furniture maker, custom wood cabinetry manufacturer and retailer Worthy’s Run Furniture LLC, filed for Chapter 11 bankruptcy protection on May 28 to reorganize its business.
Brick-and-mortar furniture retailers also face competition from online companies like Amazon, Wayfair, or Overstock.
Online furniture retailers compete with brick-and-mortar
E-commerce furniture company Walker Edison had competed successfully in the past against brick-and-mortar furniture companies until a dividend recapitalization caused economic hardship, according to court papers.
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Walker Edison files for bankruptcy protection
Walker Edison Furniture Company and three affiliates filed for Chapter 11 bankruptcy protection, seeking to quickly sell their assets to stalking-horse bidder Twin-Star International Inc., a leading furniture manufacturer, for $20 million.
Parent company Walker Edison Holdco LLC filed its petition on Aug. 28, listing up to $50,000 in assets and $100 million to $500 million in debts.
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The debtor’s largest unsecured creditors include Kenco Logistic Services LLC, owed over $3.3 million; Fortune Bonus Wooden Limited, owed over $2.2 million, and attorneys Gibson Dunn & Crutcher LLP, owed over $1.9 million.
The furniture company owes over $214 million on a prepetition term loan agreement.
The company also owes over $10.5 million on an asset-based loan facility, according to court papers.
More bankruptcy:
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- Home improvement retail supplier files for Chapter 11 bankruptcy
Walker Edison faced financial distress after the company’s previous owners secured a $300 million prepetition term loan in 2021 that was used as a dividend recapitalization, providing $210 million of the proceeds to former shareholders.
The West Jordan, Utah-based company was facing skyrocketing sales costs and sluggish sales at the time of the recapitalization, but the company was able to secure the loan after allegedly misstating the company’s financial health.
Dividend recapitalization impacts Walker Edison
The company immediately began facing severe financial distress following the dividend recapitalization, according to court papers, leading the previous shareholders to hand the company over to their lenders in January 2023.
“Unfortunately, the debtors’ efforts to stabilize their business operations over these last two years have failed,” Walker Edison Chief Financial Officer Nate Brown said in a declaration.
“At this point, the only way to save employee jobs and allow the company’s distinctive and high-quality ready-to-assemble furniture lines to continue is to sell the operating assets to a leading designer and manufacturer of indoor and outdoor furniture, Twin-Star International Inc., as quickly as possible,” Brown said.
Debtor filed lawsuit against former owners
The new company and the prepetition lenders have filed a lawsuit against the former shareholders, alleging wrongful distribution, fraudulent transfer, breach of fiduciary duty, aiding and abetting a breach of fiduciary duty, civil conspiracy, unlawful dividend, and fraud.
The plaintiffs seek to recover 100s of millions of dollars in actual and punitive damages from the former shareholders, court papers assert.
Walker Edison lawsuit allegations:
- Wrongful distribution.
- Fraudulent transfer.
- Breach of fiduciary duty.
- Aiding and abetting a breach of fiduciary duty.
- Civil conspiracy.
- Unlawful dividend.
- Fraud
Walker Edison seeks a DIP loan
The debtor is seeking approval of $6 million in new money debtor-in-possession financing to fund operations and another $7 million of new money DIP financing to fund litigation expenses from its prepetition lenders.
Walker Edison, which was established in 2006, sells ready-to-assemble furniture products through its e-commerce platform.
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