A Texas bankruptcy judge has given off-price retailer Tuesday Morning the green light to begin offloading inventory housed within hundreds of its U.S. stores. But it can't be using megaphones or flashing lights.
Tuesday Morning, a Dallas-based home decor retailer, unveiled plans to close more than half of its 464 U.S. stores shortly after filing for Chapter 11 bankruptcy protection in mid-February, citing the need to reduce its financial liabilities. The retailer's plan included exiting hundreds of its real estate leases and outsourcing its distribution efforts, and it agreed to some of its landlords' concerns about its liquidation.
For Tuesday Morning's liquidation sales, the company must follow more than a dozen court-approved sales guidelines. Those sales guidelines include keeping hours at stores that are closing consistent with those outlined in lease agreements, forgoing handing out leaflets to property visitors and steering clear of using flashing lights and amplified sound to solicit customers. Tuesday Morning also cannot add any neon signs or alter the lighting at the stores. In turn, landlords were also ordered not to interfere with the going-out-of-business sales.
The judge, Edward Lee Morris of the U.S. Bankruptcy Court for the Northern District of Texas, Fort Worth division, granted an order allowing Tuesday Morning to sell its inventory, except for furniture, fixtures and equipment.
Morris signed the order outlining the sale procedures on Thursday, allowing the sales to start. The sales are expected to help Tuesday Morning continue its operations and pay its top creditors — primarily vendors — in bankruptcy court. Last week, the judge granted Tuesday Morning $15 million of interim financing, which was only a fraction of what it requested from the court.
Tuesday Morning hopes to soon receive an offer from its debtor-in-possession lender, Invictus Global Management. As of Friday morning, no offer or news of an offer had hit the bankruptcy court docket.
Meeting Deadline
Along with concerns about lights and sounds coming from potential going-out-of-business sales, landlords aired concerns about rent owed. They also questioned whether Tuesday Morning, in operating its own going-out-of-business sales, could meet the deadline outlined in its Chapter 11 budget. The budget needs to be completed by the end of March.
For those additional concerns, Morris told the courtroom this interim order was only granted to deal with the pressing issue of closing hundreds of stores and setting guidelines to protect landlord and creditor rights.
Prior to filing for bankruptcy protection, Tuesday Morning fired Gordon Brothers Retail Partners as its store liquidator, and made plans to handle the going-out-of-business sales in-house with its own retail sales team.
That brought some concerns to the hearing, with some parties wanting a third-party entity to run the liquidation process to protect the inherent value of the merchandise in which their claims were secured. However, Gordon Brothers was ordered to not interfere with the going-out-of-business sales by the bankruptcy judge.
Judge Morris granted Tuesday Morning the right to sell the merchandise, free and clear of liens, with the proceeds of the sales benefiting the company's estate.
While the company hopes to have a buyer in its debtor-in-possession lender, the retailer could also restructure its operations once again in the bankruptcy process — a feat it will have done for the second time in three years if it comes to fruition.
Landlord Concerns
It's no surprise retail landlords are concerned about the proposed conduct of the going-out-of-business sales, said Bob Young, an executive managing director at Dallas-based Weitzman, a real estate brokerage specializing in retail real estate. Young is not directly involved with Tuesday Morning or its bankruptcy case but is familiar with the homegrown retail chain and its prior bankruptcy in 2020.
"If XYZ Corp. that has a lease in an office building files for bankruptcy, it's not visible to the public," Young told CoStar News. "For a shopping center owner, the bane of their existence is vacancies. If you have a going-out-of-business sale, it signals vacancy."
The departure of Tuesday Morning as a tenant at a shopping center can confuse retail visitors and trigger potential legal ramifications for the landlord if there's a co-tenancy clause with a neighboring tenant, Young said. Those clauses could have to do with the center's vacancy rate falling below a specified amount, triggering discounted rent or the ability for a tenant in the property to drop its lease.
From a street perspective, the words "going out of business" has a negative impact on the shopping center's curbside appeal, Young added.
Judge Morris told the court that landlords will be heard on additional arguments at hearings scheduled for next month.