Wilhelm Metzeler, the German attorney appointed to oversee the insolvency of Garant Schuh + Mode, is organizing meetings at the GDS fair tomorrow to explain the group’s financial situation and to reply to the numerous questions that its 5,000-odd affiliated retailers and its numerous suppliers have following the confirmation earlier this week of its new status – a former of Chapter 11 bankruptcy that freezes payment to certain creditors (we plan to issue an update on Friday, available at our GDS stand in Hall 11). He is reportedly planning to meet also some potential investment candidates such as René Jäggi, the former CEO of Adidas who recently sold his shares in Romika, and who is said to be again interested in taking over Salamander, the international shoe retail chain acquired by Garant last October, whose insolvency was pronounced last week.
The Italian shoe industry association and others have withheld any public comments or recommendations to their members until they receive these much-awaited clarifications. One has suggested that suppliers should hold off any further deliveries until they know who should be billed. Meanwhile, Sport 2000 France, which is partly owned by the Ariston Nord West Ring (ANWR) group, has cancelled its own contract for central settlements with Garant, telling its suppliers to address any unpaid or future invoices directly to its own retail members. The French buying group proposes to guarantee the payment of the bills if any of its retail members doesn’t pay them within 120 days and if it cannot find before then a new service provider. It seems likely that ANWR will take over the billings through its own DZB bank, maybe also for another French buying group partly owned by Garant, SED, whose members trade under the Téchnicien du Sport and Twinner International banners (more on this in Sporting Goods Intelligence Europe).
Garant filed for insolvency in Germany one week ago, citing the refusal by one of the 18 members of its bankers’ pool, Rabobank of Holland, to agree to the conditions that had been set with the others on a new credit facility. The insolvency has been extended to all of Salamander’s operations in Germany, to the exclusion of its stores in other countries. It does not cover for the moment Garant’s Rexor subsidiary in Germany or its national organizations in France, Holland and other countries, but the latter depend on the headquarters in Düsseldorf for the payment of their suppliers’ bills.
These suppliers are nomally paid by Garant every ten days. Garant officials say that all the invoices due on Aug. 30 were paid, while most of those due on Sept. 10 have yet to be paid. They indicate that the group is considering resuming partial or full payment of outstanding invoices after Sept. 20, depending in part on the attitude of the banks.
According to company officials, the decision to place Garant’s Salamander subsidiary in insolvency last week as well should help the group to find a reasonable arrangement with the banks. Salamander is still losing money in Germany in spite of encouraging sales increases in its German stores so far this year, but is expected to move into the black in 2005 after additional reorganization measures.
Salamander points out that the wages of its 1,093 employees in Germany are guaranteed for three months. Anyhow, the insolvency of Salamander will free up some cash resources that Garant apparently needed because of a sudden unexpected increase in its financial obligations, as many suppliers who are themselves in financial difficulties decided to deliver the merchandise to the affiliated stores earlier than usual in order to make money sooner.
As soon as they heard about the insolvency, several suppliers asked the retailers to pay them directly, running the risk of getting the money only 60-90 days afterwards as is often the case in some European countries. Garant officials and their buying agents around the world are telling retailers and suppliers to be patient and stay quiet for a few more days, calling on their sense of trust and respect.
Garant handles centralized settlements for nearly 5,000 affiliated retailers who own about 7,000 footwear, leathergoods and sporting goods shops all over Europe, including directly owned stores in Germany, Switzerland and other countries. Independent retailers own 61 percent of Garant’s shares, which are traded publicly on the Frankfurt stock exchange.
Officials of Garant point out that the group’s temporary cash problems are partly linked to the difficult economic situation in Germany and to the group’s acquisition of many assets of Salamander’s former shoe division, which drained its financial resources. Garant blamed the takeover, which involved extraordinary reorganization charges of €14.1 million, in reporting a net consolidated loss of €14.1 million for the 2003 financial year and for a reduction in the equity ratio from 18.1 to 6.9 percent, as compared to ratios of 44 percent for ANWR and 26 percent for SABU, the other major German buying group, which it tried to annex last year. It indicated at the time that it wanted to raise more equity by issuing new shares or warrants.
Salamander, which runs 230 stores including nearly 100 in Germany, points out that its domestic sales rose by 8.6 percent on a comparable basis in the first 7 months of this year, in spite of a 4.1 percent decline in the German market, or a 5.6 percent increase including other operations. The sales increase, which reached 10.4 percent in August, is attributed in part to better collections, with the elimination of the former Salamander brand and the inclusion of new brands like Esprit, Lloyd and Tommy Hilfiger.
Besides sinking by nearly 70 percent the company’s value on the stock exchange, the insolvency of Garant has cast a shadow over the future role of the buying groups in general, partly in view of the liquidation many years ago of Kaufring and its Golden Team Sport operation, which was overseen by the same attorney. ANWR and SABU, which have resisted so far the temptation to go directly into retailing by taking over one or more chains, as Garant did last year, both hastened to reassure their suppliers and members that their own financial position is solid.
Unlike SABU, ANWR was also in a position to emphasize the fact that it has its own bank, that it made a small profit last year and that it expects to make a similar one in 2004. Executives of Intersport and Sport 2000 indicate that Garant’s very competitive conditions to attract and retain its retail members have weakened the group’s financial health, particularly in these difficult times. Another weak point was the lack of a well-known banner, other than those of Salamander and of a few other shoe retail chains acquired in Switzerland recently.