True Value Bankruptcy Reflects Depth of Distress in Home
Vicki M. Young
5 min read
Distress in the home category has expanded from home decor and furniture retailers to materials such as flooring options to now home improvement and hardware wholesale.
True Value Co. LLC filed a voluntary Chapter 11 petition for bankruptcy court protection on Monday in a Delaware bankruptcy court. The filing will allow the 75-year-old company to continue day-to-day operations as it prepares to be sold to home improvement competitor Do It Best. Do It Best is slated to become the “stalking horse” bidder in the bankruptcy case, setting the base value for any other better offers that might be forthcoming. Do It Best also is providing incremental capital to True Value to help it finance operations in the Chapter 11 case.
True Value is a wholesaler that serves 4,500 independently-owned stores that rely on it for its products. Historically, the company was owned by a cooperative of its retailers. Some of those retailers still own about 30 percent of the company.
“After a thorough evaluation of strategic alternatives, we determined that the sale of our business was the path forward to maximize value and best serve our retail partners and other stakeholders into the future,” True Value’s CEO Chris Kempa said. “We believe that entering the process with an agreed offer from Do it Best, who has a similar decades-long history in the home improvement space and also operates with a focus on supporting members and helping them grow, is the most beneficial next step for True Value and our associates, customers, and vendor partners.”
With the exception of one company-owned store in Palatine, Ill., the independently-operated stores are not part of the Chapter 11 proceedings. True Value said on Monday that expects to complete the sale process by year end.
A court document indicates that Do It Best’s offer includes a cash purchase price of $153 million, plus the assumption of certain liabilities and up to $45 million of certain trade payables. Should Do It Best get outbid in a court auction, the parties currently contemplate that it would be entitled to receive a break-up fee of nearly $4.6 million and up to $1.5 million in expense reimbursement, pending bankruptcy court approval.
True Value’s chief transformation officer Kunal S. Kamlani is also a senior managing director of M3 Advisory Partners LP and the former president of ESL Investments Inc., run by hedge fund owner and former Sears CEO Eddie Lampert. Past stints also include president and chief operating officer of Prestige Cruise Holdings and chief operating officer of Citi Smith Barney.
A Kamlani court filing indicated that True Value operates 12 distribution centers that services its 4,500 retail storefronts, with those retail stores accounting for 76 percent of True Value’s sales. Other customers account for the 24 percent balance of sales. He cited the COVID-19 pandemic and supply chain disruptions as a factor that “made it more difficult and more expensive for the debtors to source products.” And he noted that because of a decreased fill rate, the percentage of orders they could ship from available stock, certain customers began using other wholesalers, either in whole or in part.
Revenue in 2019 totaled $1.34 billion, while pull-forward demand during COVID as consumers worked on home improvement projects saw sales jump to $1.56 billion in 2020. Revenue fell to $1.46 billion in 2023, and conservative buying by retailers in 2024 resulted in revenue totaling just $868 million through the end of August. Kamlani noted that “during COVID-19, certain of the company’s customers added competitive wholesalers as back-up suppliers, decreasing the debtors’ post-COVID-19 market share.” Compounding True Value’s macroeconomic headwinds were challenges under its credit facility, including imposed changes by pre-petition lenders that impacted how much the company was able to borrow. The reduction in liquidity reduced the company’s access to working capital, Kamlani said.
Of the 12 leased distribution centers, two—one is Manchester, N.H. and the other in Denver, Colo.—are being phased out. The other DCs are in Wilkes-Barre, Penn.; Corsicana, Tex.; Harvard, Ill.; Springfield, Ore.; Atlanta, Ga.; Cleveland, Ohio; Kingman, Ariz.; Kansas City, Mo.; Mankato, Minn., and Woodland, Calif.
True Value was founded in 1855 as Hibbard Spencer Bartlett & Co., with the True Value brand introduced in 1932 as a line of hand tools. Following an acquisition and later a merger, the company was renamed True Value Co. in 2005. The company had direct sales across nine different product categories, with Home generating $168.6 million in 2023.
Kamlani said the company sources about 75,000 products from a network of more than 2,000 suppliers. Last year, 93 percent of products were purchased from domestic suppliers, 5 percent were from suppliers in China, and the remaining 2 percent were from suppliers in other countries. Across its diversified supply network in 2023, no one supplier accounted for more than 2.9 percent of total products purchased and the top ten suppliers for products across its nine categories accounted for 16.2 percent of products purchased.
The Chapter 11 petition estimated total assets at between $100 million to $500 million and total liabilities at between $500 million to $1 billion.
The home sector has seen much distress for much of 2023, which has extended into 2024. Last year saw the mega filings of Bed, Bath & Beyond and Tuesday Morning, among other home retail filings. The home sector’s bankruptcies stood out in 2023 due to the number of store closings last year that totaled close to 2,900 locations, with home contributing a total of 1,228 closures. Bed Bath & Beyond alone contributed 896 to the home sector’s total.
This year’s list of home retailers filing for Chapter 11 include the Conn’s banner and the nameplate W.S. Badcock that it acquired in December 2023, flooring retail LL Flooring, and closeout home retailer Big Lots, which filed its Chapter 11 to effect a sale to Nexus Capital Management.
