Popular home improvement retailer shuts down; no bankruptcy plans

Iconic home improvement store closed all of its stores for an out-of-court wind-down of its business.

Jan 27, 2024 - 04:30

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Popular home improvement retailer shuts down; no bankruptcy plans

Most consumers would agree that retail giant Home Depot (HD) - Get Free Report is the most preferred home improvement store in America with Lowe's (LOW) - Get Free Report placing second.

That was confirmed in October 2023 in a survey by Today's Homeowner, which also placed Midwest regional home improvement store Menard's third among these big box stores. Hardware store chain Ace, with smaller stores, but many more locations than the big boxes, placed fourth.

The big box home improvement store chains have always put pressure on the few remaining independent hardware stores and smaller retailers who specialize in home improvement products such as windows and glass products, carpeting and flooring, wood products and paint and others. Home Depot and Lowe's are are attractive to a lot of consumers as one-stop shops for a lot of these products, which can be a detriment of smaller players.

The retail competition isn't the only factor in the survival of specialized home improvement retailers. Other economic impacts, such as rising lease rates, effects from the Covid pandemic or unexpected litigation costs, can cause financial distress.

Kelly-Moore Paints shuts down all stores

Iconic paint retailer Kelly-Moore Paints has shut down all 157 of its retail locations and furloughed about 700 employees, as it plans an orderly, out-of-court wind-down of all of its business operations.

The regional paint store chain suffered financial distress for years from paying out about $600 million in asbestos litigation claims and still faces millions of dollars more in payments from future asbestos claims, as well as unpaid taxes, according to a statement.

Kelly-Moore, which operated in California, Nevada, Oklahoma and Texas, said in a statement that it would not file a Chapter 11 bankruptcy reorganization or Chapter 7 liquidation, since it does not have the capital to fund its continued operations, it leases all of its facilities, and it has no unencumbered hard assets that could be made available to distribute to creditors.

The regional paint store chain, which was founded in 1946, had moved its headquarters to Irving, Texas, in 2023 after operating from its main office in San Carlos, Calif., for 77 years.

The company had hired financial adviser firm Houlihan Lokey to help seek capital for a business turnaround and entertain offers from interested investors, but was unable to secure a letter of intent from any investor and failed to obtain additional funding to continue operations.

The company began closing its facilities on Jan. 12, including all of its retail stores and its manufacturing facility in Hurst, Texas, but said it would try to continue fulfilling previous placed customer orders from existing inventory at its Union City, Calif., distribution facility

Kelly-Moore said employees will be fully compensated for regular time worked, and management will continue its efforts to collect receivables to pay all accrued benefits including paid time off.

Asbestos litigation causes financial distress

The company said that over the last 30 years it has faced thousands of asbestos litigation claims related to its past use of asbestos in cement and texture products under prior ownership, a practice that was discontinued in 1981. Despite paying out about $600 million for asbestos claims over the last 20 years, a study commissioned by the company estimates that its future asbestos liabilities will surpass $170 million.

Pleuger Chemicals acquired Kelly-Moore in October 2022 and appointed turnaround management professional Charles Gassenheimer as CEO to evaluate and implement strategies for improving the company’s distressed financial position

“Our owners took on significant financial risks in the acquisition last year,” Gassenheimer said in a statement. “Unfortunately, despite their extraordinary efforts after acquiring this distressed business, they simply couldn’t overcome the unexpectedly large challenges, and will be exiting the business.”