Restructured Gym Equipment Supplier in Ch. 11 Bankruptcy

The Situation

The company was founded during the COVID-19 pandemic to fulfill unusually high demand for home gym equipment by supplying dumbbells and kettlebells to major retailers. Its founding shareholders financed the company’s rapid growth by borrowing over $20 million from a private lender at high interest rates. When demand for gym equipment fell sharply in 2022 and major retailers canceled purchase orders overnight, the company’s management did not adjust purchases, resulting in approximately $15 million in excess inventory stored in the US, Mexico, and China.

Having lost confidence in the management team and with over 10 million pounds of exercise equipment deteriorating in its warehouses in the U.S. and Mexico, the company’s outside investors and lenders retained our experts to bolster management’s efforts to restructure the company. However, management’s continuing failure to communicate effectively with the investors and lenders resulted in a toxic, contentious relationship, and the company’s founders chose to file Chapter 11 bankruptcy in December 2022.

How We Advised

As Interim CEO/CFO and strategic advisor to a bankrupt gym equipment supplier, we guided the company through a successful reorganization under Ch. 11 Bankruptcy.

Key actions leading to the company returning to cash flow positive included:

Assessing the company’s options for its stakeholders, including outside investors and lenders, then demonstrating the projected outcomes of an orderly liquidation plan vs. supporting a growth plan.
Reorganizing management into a much smaller, higher-functioning team.
Reducing fixed overhead expenses, including moving from a leased warehouse to 3PL model.
Eliminating product lines and liquidating inventory through inventory closeout sales.
The company founders, who comprised its executive team, were uncooperative, blocking communication and information transfer to the lenders, us, and the CRO hired after the Ch 11 bankruptcy filing:
- Our experts were engaged by the company’s lenders to take over the company as Interim CFO & Interim CEO, working with the CRO to help coordinate and facilitate information flow during the Ch. 11 Bankruptcy and turnaround the company into a profitable entity.
- We helped the lenders negotiate the exit of the founders early in our engagement.
- The lenders took over ownership of the company after the ill-advised Ch. 11 bankruptcy filing.
- Our experts developed and implemented a methodology to prioritize initiatives and coordinated the executive team to vote and agree on tackling the most important initiatives.
The company’s remaining management team was not empowered and lacked accountability:
- We implemented operational metrics meetings to align and inform the company’s lenders.
- We implemented weekly calls with the board of directors to provide updates and communicate newly discovered issues.
- Our experts restructured the team and sharply reduced overhead.
Lack of Inventory planning and control:
- We developed and helped implement detailed sales forecasts by SKU, as well as inventory planning and management tools.
- Our experts developed models to help understand excess and obsolete SKUs based on current demand.
- We analyzed competitive pricing and helped fine-tune the pricing and discounts on all SKUs.
- Our experts implemented cycle counting in the different warehouses.
- We successfully negotiated the purchase of fresh and sellable inventory from a Chinese vendor using ~ $300K in forgotten deposits made by the company’s founders.
Lack of credible financial reporting:
- Our experts implemented 13-week cash flows & financial projections.
- We negotiated with multiple domestic and international product suppliers who were critical to the company’s survival.
- Our experts successfully negotiated and implemented new administrative services for banking, insurance, etc.
- Following the company’s exit from Ch. 11 bankruptcy where the lenders converted their debt to equity, we advised the owners of their strategic options and recommended a small investment in a popular new product to reestablish customer relations, and to expand its customer base toward becoming a profitable company.
Landlord gave 3 months’ notice to move locations:
- We recommended not negotiating with the landlord and instead moving to a third-party logistics (3PL) warehousing and fulfillment service.
- Our experts evaluated and negotiated terms with a nationwide 3PL provider.
- We successfully searched and negotiated new sublease with landlords.

Key Contact

Mike Bergthold, CTP
Senior Managing Director
Strategic Advisory Practice
+1 213 404 0113
[email protected]

Related Practice Areas

> Bankruptcy Advisory
Navigating bankruptcy is inherently complex, often involving struggling businesses, litigation, incomplete or inaccurate financial records, potential fraud, and other challenges, in addition to strict court-mandated processes. Our experienced team of turnaround and restructuring experts seamlessly guides clients throughout the process to optimize outcomes for lenders, creditors, shareholders, and employees.

> Chief Restructuring Officer (CRO) and Interim Management Services
Our experienced C-suite interim executives advise and support companies in financial distress, experiencing hypergrowth, or that are challenged by critical vacancies among senior leadership. Whether the leadership void results from operating challenges, a recent officer resignation, the need for added support during busy periods, or during an extended job search for the right permanent hire, our experienced executives provide immediate relief and value.