The liquidation sale process for Vaughan, Ontario-based discount retailer Factory Direct’s 14 stores which are closing, may be a signal of more to come in the industry that continues to be challenged.
Alex Hennick, of A.D. Hennick & Associates, along with partner Jonathan Ordon from Danbury Global, is handling the Factory Direct liquidation and said the process which began recently has gone really well.
Hennick said the liquidation industry has been “overwhelming” recently.
“We are getting so many more calls than we’ve ever had. For excess inventory, a lot of manufacturers are sitting on goods. They had record sales in 2020 when everyone was at home, interest rates weren’t as high. In 2021 very similar, even better than 2020. People still had disposable income. They weren’t maybe traveling as much. 2022 it was terrible. It was something almost where Black Friday never really happened for a lot of the retailers. Christmas sales were down,” he said.
“But what happened is because a lot of people had record sales in 2020 and 2021 they got ready for 2022 and over-inventoried . . . And the sales never happened. So we’ve seen in the last couple of years, but definitely way more now, a lot of manufacturers are sitting on inventory. Retailers shutting down. So they have canceled orders. It’s been pretty significant in terms of excess inventory.
“To me it’s pretty scary. And I think it’s getting worse, at least from what we’ve seen. There’s a lot of inventory on the market these days that just doesn’t have value at all. It’s going to be a tough time ahead.”
A.D. Hennick & Associates began in 2009.
“We work with manufacturers, distributors and bankruptcy trustees to purchase larger quantities of inventory. When we work with manufacturers and distributors we’re typically purchasing last year’s model, canceled orders, discontinued. We’re working with brands where we’re working on major brand restrictions. So the number one question is where do you not want your products sold and do you want to avoid any specific retailers, do you want to avoid these countries, do you not want to have it online,” said Hennick.
“So we find out restrictions as to where we can’t sell it and then we’ll purchase it in volume and then resell it to the appropriate channels.”
Hennick said the company is seeing more stock right now for anything relating to the home for example. Because interest rates are high, many people are not buying homes therefore they’re not doing renovations. Anyone who sells furniture, lighting, appliances, etc., are sitting on a lot of inventory. With retailers having a sale to the public with inventory going on the market at 50 to 80 per cent off, it is going to affect every other retailer.
“So not only has it affected them but for a period of say two months while they’re running a bankruptcy sale why would any other customer go to their competitors when they are closing at that price. Now these other stores are affected. Maybe it comes back where there’s less market share and there could be more opportunity for them down the road but temporarily it’s bad and it gets even worse.
“Similar to what we’re doing right now. We’re running the sale right now for Factory Direct . . . It’s an exciting opportunity for us to be able to run an incredible $10 million liquidation sale with high end goods, brand names Apple, Samsung, LG. We’re doing everything from store level. So we have 14 stores. But we have the best brands and the best products in the world at incredible prices. So because of this our stores are packed. We’re restocking daily and the deals are there. But a lot of other people who sell similar products, for customers it wouldn’t make sense for them to go and buy there until such time that our sales are over because our prices are very aggressive and our quality of products is also good. It’s something where by us doing this sale it further impacts the market for the kind of product we’re selling.”
In a previous interview with Retail Insider, Hennick said that Factory Direct was a terrific retailer, and that the business had struggled financially due to a variety of factors and as a result, is no longer viable.
Hennick said a large amount of the company’s business comes from excess inventory but bankruptcies are another area where it builds relationships with the trustees to get an opportunity to bid on the assets of the bankrupt company.
“And depending on the situation, we’re either going to be running an auction, we’re going to be running a retail sale, we might buy it and then sell it wholesale.”
In the Factory Direct situation, the company was appointed to be the liquidators for the sale. All 14 stores are open where the liquidation sale takes place. A distribution centre is utilized where the stores are constantly filled with stock. There’s also a closing plan when the liquidation sales process is ending by first shutting down a few stores and depending on locations and leases over the next couple of months there will be a plan to shut down all locations and sell all the goods through retail.
“We’re working on another deal right now. We’re making a bid to purchase the assets of a bankrupt company. If we win the bid, what happens is we purchase the inventory, I’ll send my team in and we’ll have four or five days to clear out their entire warehouse and in time we’ll just bring everything directly back to my warehouse where four to six weeks later we’re going to have an auction and we’re going to auction off all the inventory we bought in my facility.”
Factory Direct filed an NOI under the Bankruptcy and Insolvency Act on February 7 and court approval gave the green light to liquidate the chain.
Factory Direct said in filed court documents that it had struggled with declining sales and increased costs following the pandemic. The retailer listed liabilities of about $3.5 million as part of its filing, including approximately $1.6 million in termination and severance pay owed to its employees. High economic inflation and increased minimum wage requirements resulted in significantly increased overhead costs for the company, which failed to see sales increase enough to make the business profitable. The company lost about $1.7 million for the 11 month period ending November 30, 2023, according to court documents.
