Why The Container Store could be next retailer to go bankrupt
The Container Store rapidly gained fame through the success of Netflix's "Tidying Up" series. Today, it could be the next big retailer to go bankrupt.
The retail chain, which offers a range of custom spaces, organizational solutions and in-home services, is contending with a weaker housing market and a growing availability of cheaper alternatives.
The company touts itself as the "nation's only home storage retailer with a solution-oriented approach." But Eric Snyder, partner at New York City-based Wilk Auslander LLP, told FOX Business that the housing market conditions and growing competition have "made this brick-and-mortar company… an unnecessary purchase."
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The company doesn't benefit from holiday sales because their products are not considered discretionary purchases, which is exacerbating its woes, according to Snyder.
"Because of this, plus the loss of a $40 million lifeline from Beyond, bankruptcy and a quick sale is the only option," Snyder said. Beyond Inc., which owns Bed Bath & Beyond and Overstock.com, backed out of a deal to invest $40 million in the Container Store Group as part of a new partnership.
Beyond originally planned to invest in the company and utilize a section within the Container Store’s real estate locations to showcase its assortment of kitchen, bath and bedroom items, which would be co-branded. But Beyond Inc. Executive Chairman Marcus Lemonis said last month that the company had concerns that The Container Store might not be able to reach an agreement with its lenders on terms that would meet the financial needs of the deal.
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"When we signed the Purchase Agreement, we were optimistic that the Container Store would be able to secure adequate financing to support the business going forward," Lemonis said. "While we continue to believe in The Container Store’s brand and business fundamentals, the proposed financing terms we have reviewed to date fall short of what we believe is necessary to complete the transaction. As careful stewards of our shareholders' capital, we must remain steadfast in ensuring that the terms of any financing package work for both The Container Store and Beyond."
Beyond said it will continue to evaluate any financing proposals that The Container Store provides. But it needs to obtain commercially acceptable financing as set forth in the purchase agreement by Jan. 31, 2025, or the agreement will be terminated.
Patrick Collins, bankruptcy and restructuring attorney at New York-based law firm Farrell Fritz said The Container Store's ability to avoid bankruptcy really depends, "at least in the short term, on whether it can obtain relief from its lenders."
"The timing of a potential bankruptcy will be dictated by the company’s liquidity and progress on preparations towards implementing the strategy it would hope carry out in a Chapter 11 bankruptcy case," Collins said. "In the meantime, publicized predictions of a bankruptcy filing by The Container Store may further increase the financial pressure on the company as the prospect of a bankruptcy may cause trade vendors to tighten or eliminate the credit terms they offer to the company."
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Eric Clark, portfolio manager of the Rational Dynamic Brands Fund, said that "there’s really no reason for the brand to exist" given all of its competition.