Popular household retail brand files for Chapter 11 bankruptcy

Multi-level marketing companies, which place confidence in their sales representatives to sign on new representatives to generate more direct sales, have seen that business model struggle over time.

Direct sales represent a small section of the U.S. overall retail market as person-to-person sales generate about 1% of total retail sales in the U.S., with about $Forty.5 billion in direct sales in 2022, per the U.S. Direct Selling Association.

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A range of some of the most well-known multi-level marketing companies encompass the industry leader Amway, which started in 1959 and sells nutrition, beauty, and cleaning products; Herbalife, founded in 1980 and produces and sells nutritional products; and Tupperware, known mostly for its air-tight food storage containers.

By way of Tupperware's direct sales reps, best 1 out of 833 earns over $32,000 a year selling its goods, per Good Bad Marketing. Those sales reps also face retail competition from Target and Macy's, which both sell Tupperware products in their stores.

All three direct sales companies adopted online sales years ago to prop up declining direct sales.  Amway and Tupperware joined the web retail model in 1999, but Herbalife went online later in 2015.

Amway generated about $7.7 billion in sales in the year ending Dec. 31, 2023, a 5% decline from 2022. Herbalife reported $5.1 billion in sales in 2023, down 2.7%. Tupperware reported $1.1 billion in revenue in 2023 for a 14% decrease.

Sales haven't been adequate for Tupperware Brands (TUP) today, as the global food storage products provider and 9 affiliates filed for Chapter 11 protection on Sept. 17 searching for a sale of its assets and to prevent an ad hoc group of three lenders from acquiring the corporate through an out-of-court foreclosure on certain company assets, including the Tupperware brand name.

Related: Iconic houseware brand in a position to file Chapter 11 economic ruin

Tupperware, which is hampered by about $811 million in funded debt obligations primarily from a single, first-lien credit facility, issued a going concern warning with its 2022 0.33-quarter earnings report after its historic direct-selling model began showing weaknesses, per a declaration by the corporate's Chief Restructuring Officer Brian J. Fox.

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The corporate began a marketing process in April 2023 to are searching for a buyer for its assets but did no longer produce any offers acceptable to its term loan lenders. The debtor restructured its debt in August 2023, but missed a loan payment in February 2024 that led to a forbearance agreement.

Tupperware's 2nd effort to sell the corporate fell through just before the July Four, 2024, holiday weekend. Also in July, the corporate's first-lien debt traded to a fresh group of lenders, and the corporate entered discussions a couple of going-concern transaction wherein the ad hoc group of lenders would purchase the Tupperware brand, certain U.S. assets and % out foreign subsidiaries.

The debtor proposed that any sale to the ad hoc group be implemented through a Chapter 11 economic ruin process and funded by debtor-in-possession financing from the lender group.

The debtor submitted Section 363 sale and DIP loan proposals to the lender group, which became expected to submit a DIP term sheet and proposed order to the debtor.

As a substitute, the ad hoc lender group indicated that it became planning to amass the corporate's name and certain assets through an out-of-court strict foreclosure, per court papers.

The debtor believed it had no choice but to file for Chapter 11 economic ruin protection and to use its limited cash on hand to fund a 30-day bidding process for a Section 363 all-cash auction of its assets.

The Orlando, Fla.-based debtor listed $679.5 million in assets and over $1.2 billion in debts in its petition filed in the U.S. Financial disaster Court for the District of Delaware.

The debtor cited a few reasons for its economic ruin filing including shifts in consumer behavior toward online shopping. It said best Four% of homeware sales come from direct selling, though the corporate derives ninety% of its sales at some point of the model.

It also listed other operational challenges, corresponding to anti-plastic sentiment among consumers who will no longer purchase plastics containing BPAs, marketing deficiencies, and underdeveloped infrastructure.

The debtor's largest unsecured creditors encompass Chang Tsi and Partners Ltd., owed over $1.2 million; BDO USA, owed $1.06 million; and FTI Consulting, owed $659,467.

Tupperware became founded in 1946 and currently employs over 5,450 workers in Forty one countries and partners with over 465,000 autonomous sales representatives worldwide, who sell the corporate's products on a freelance basis in 70 countries.

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