WEST PALM BEACH, Fla. (BRAIN) — In an interview with Bicycle Retailer and Industry News, BikeStreet USA president and chief operating officer Dustin Netral said that the retail chain expects to finalize the sale of assets and inventory by the end of November. Netral said that as many as nine of BikeStreet's stores may be taken over by former owners or managers who ran them before they were acquired by BikeStreet.
Netral, who joined the company in May from the appliance and electronics retail chain H.H. Gregg, agreed to talk to BRAIN about BikeStreet USA this week.
BRAIN published a story online last Friday detailing the company's plan for liquidation and shuttering of the stores, but the website took down the report after company executives said they would take legal action against the magazine for publishing details from a conference call with creditors that morning.
In the days following that call, Netral said he has contacted the landlords of all 17 store locations to alert them of the company's liquidation and to work out lease agreements so former store owners or managers can take over the remainder of the leases. "Landlords have in principle agreed to work with former owners," he said.
Six of the 17 BikeStreet USA stores remain open—three in Florida and three in South Carolina—and are selling off the company's remaining inventory and assets for the benefit of the creditors, he said.
Among the bike chain's top suppliers were Dorel's Cycling Sports Group, Scott and Cervélo. CSG and Cervélo were among the five secured creditors. Netral couldn't recall the total number of unsecured creditors, but he said that the company has anywhere from $2.1 to $2.3 million in unsecured debt. Most of the secured creditors have taken back their inventory.
Among the dozens of creditors on Friday's call were J&B Importers, Niner Bikes, Santa Cruz Bicycles, Shimano and QBP. Bike brands listed on BikeStreet's website include Cannondale, Scott, Fuji/SE bikes, Schwinn, Cervélo, Haro, Pinarello, Sun and GT. The retailer also carried many component and accessory brands.
Netral and Tony Karklins, who joined BikeStreet as the company's executive vice president of merchandising and business development in July, along with legal counsel, are handling the liquidation process.
"We believe that is the best option for creditors given that there are not a lot of third-party trustees or companies with experience with bicycle shops or chains of bicycle shops," Netral said. "And the challenge with bankruptcy is it's a diminished return. Throughout the entire process we've been upfront and honest with our suppliers and responsible with them. We're keeping everyone informed. Contrary to the way a lot of folks handle this in the bike business, we believe communication and transparency is important. We'll continue to communicate with all of our suppliers. So far all have been supportive of our plan."
BikeStreet USA employed 96 people and approximately 40 have been let go in the past week with the remaining employees still working in the six stores or in administrative functions. "As we go through and get inventory reconciled, those folks will also be let go. BikeStreet is working with them to help them find other employment," Netral said.
Pat Patregnani, an avid cyclist and the CEO of marketing advertising firm Zimmerman Advertising, founded BikeStreet USA in 2012 and launched into the market with an aggressive business plan, acquiring independent bicycle shops and rolling them up into its corporate structure. Under BikeStreet, the stores would benefit from leveraging technology like point of sale systems, inventory management and websites that would be handled by BikeStreet, as well as marketing and greater buying power from its larger scale. Former owners and managers would receive backend operational support, allowing them to focus on taking care of customers and servicing bikes.
Asked why BikeStreet USA was shuttering, Netral pointed to several factors that led to its financial struggles including too many brands—at one point BikeStreet had up to 19 different brands of bicycles, and too much road bike inventory when the road market softened while having too little inventory in growth categories like lifestyle/leisure and mountain bikes.
Netral also said that BikeStreet USA stores were impacted by weather in 2013 and early 2014, especially its stores in the Carolinas. In Florida, a record amount of rain this summer also hurt sales, he said.
"From my perspective, the company simply was out of position on inventory and had too many brands," Netral said. "At the end of the day, you need to have a very sharp focus with who you're going to market with. That was problem No. 1. Problem No. 2 was BikeStreet was out of position with inventory with regards to different segments," he said.
"BikeStreet was also founded by folks without multi-unit store experience," he said. "When you go from one shop and you're in there everyday and you can control everything. You have your eye on everything and then you go and own 17 locations, you have to have a different set of skills to manage 17 stores, 17 managers, 17 set of employees. That's just not suited for enthusiasts without multi-store experience," he added.
Patregnani led the company until he resigned in May of this year. He remains a shareholder. Gregg Throgmartin, a former executive at H.H. Gregg and an investor in BikeStreet, joined the company in late March as its CEO. He resigned in September.
Netral, who ran more than 200 stores for H.H. Gregg as former VP of store operations, came to BikeStreet with plenty of experience managing a multi-store retail business. He said despite efforts to raise cash, the company couldn't procure an estimated $3 million from investors to turn the business around.
Related stories: New retail chain plots aggresive growth (December 2012) | Karlkins returns to retail (May 2014) | Under new CEO, BikeStreet USA dials back growth plan (May 2014, .pdf file).
