The Death of Sierra Snowboard and Its Repercussions
As many people have known I’ve followed what has been going on with Sierra Snowboards in regards to the snowboard industry, its business practices, and how this was all going to pan out. Initially it started with Burton Snowboards along with a few others pulling out from them, then it lead to rumors of imminent chapter 11 status as a way to cock block Burton from getting paid up front for their product, and now most recently some new developments have arisen in the form of Michael Horrosh the owner filing a motion to move the bankruptcy from chapter 11 bankruptcy (reorganization) to chapter 7 (liquidation). Here’s what was posted on Easy Loungin who did the ground work looking through the court documents:
Michael Anthony Management (Sierra) filed a motion to convert the matter from chapter 11 (reorganization) to chapter 7 (liquidation). But that motion has not yet been heard or ruled upon.
The unsecured creditor’s committee has objected to Sierra’s motion because the committee thinks Sierra’s assets can be sold for greater value under the reorganization procedures (the committee has asked the court to appoint a trustee to handle the sale).
According to court filings, there are currently two offers to purchase Sierra’s assets. One is from the entity that runs The House. Sierra wants to the court to approve that offer.
Sierra claims The House has conditioned the deal on: (1) getting the sierrasnowboard.com domain name; and (2) Michael Harrosh (who is basically Sierra’s owner) entering into a “consulting” agreement with The House. But Sierra claims it does not own the domain name — Michael is the alleged owner.
Michael says he will agree to sell the domain name and enter into a consulting agreement if: (1) he gets $750,000 of the sale proceeds; and (2) Sierra and all creditors release any and all claims they may have against Michael, his father, a business entity owned by Michael and his children, and a business entity owned by Michael’s father.
The domain name is one of the most valuable Sierra-related assets. Michael is using it as a bargaining chip to walk away with some money (the $750,000) and limit future liability for him, his family, and their business interests (that is what the releases are about). My guess is the creditors claim Sierra (not Michael) owns the domain name. A big battle over domain name ownership is somewhere on the horizon.
As stated in this quote the matter of going forward to chapter 7 has not been heard or ruled on so at this point in time the news on Transworld Business is not fact . One can only assume this is due to the long weekend and will be addressed in court later this week. Now that you’ve had a chance to catch up on what has been going on, lets delve deeper into the list of possible scenarios that could happen to the snowboard industry as a whole.
The most obvious one is that The-House buys them out. That would mean all of last years merchandise would be sold at a mark down of 30 to 40 percent along with all sales agreements being met. Essentially for The-House it would be business as usual for them with their current business model. They were one of the original purveyors of couple season old discount gear to entice beginners into buying snowboard equipment.
The biggest issue of this to take note of though is that the unsecured creditors committee has objected to this as they believe leaving Sierra in chapter 11 could benefit them more. Rightfully so getting fifty cents on the dollar is better than two cents. Being an unsecured creditor means that you’re basically fucked when it comes to getting back payment and that everyone else is in front of you. So think about the smaller companies that had business with Sierra that weren’t able to get their credit secured. What do you foresee happening to them? Yeah not ideal but we’ll go into that further down the road.
So lets say the judge in this court case hears what the unsecured creditors committee is saying and agrees to it. That would mean that Sierra keeps on going with business as usual till debts are repaid. The only issue now would be with companies as a whole. As who would want to deal with them anymore? So slow death approach but business as usual for the time being.
The third and probably most fucked option and one that I personally hope to never see is that it goes to chapter 7 liquidation that ends up in either a public auction or a private buying group. This would be one of the most detrimental fuck overs in the snowboard industry ever. As the product is being liquidated we could potentially be seeing companies like Sams Club (Wal-Mart), CostCo., or some mega conglomerate store sucking up the inventory. This would lead to some of the worst gray marketing we’ve ever seen. Once again the biggest hit would be taken by local stores that were seeing gear being blown out at 70% off and unable to compete with it. This would be a worst case scenario and I don’t foresee it happening, but the potential is there.
As I mentioned earlier there’s a group of brands that were doing business with Sierra that have unsecured credit. Basically without secured credit these guys stand to lose the most money on a chapter 7 filing if not all of what they had invested in the inventory Sierra now holds on to. This is where the biggest hit to the industry will happen, the large companies might take a small hit and have to be smart with a few things for a year or two to recover. But for a smaller brand it ultimately means that capital that was expected to be paid to make the next years gear, pay advertising, or salaries won’t be there. The effect of this bankruptcy could be felt as far down as the next three seasons as brands of a smaller caliber struggle to recover from such a substantial hit.
So is there a silver lining to the demise of Sierra? There are a few things that everyone needs to take note of that have been part of Sierras problems since they started. First and foremost every brick and mortar shop regardless if it’s in Tahoe or all the way in New Zealand has had to deal with their international shipping, super discounts, and general disregard for buying agreements. By leveling the playing field so that current in line product stays with the standard mark downs that are advertised (yes advertised not talking about the super secret VIP sales) we won’t be seeing discounts of 20 to 30 percent before or right at Christmas, instead the standard 10 percent till January, then slowly marking down as the months get closer to April where ultimately it’ll hit the 40% off until the fall when the last years gear gets even more of a mark down.
One other issue that will happen is the brainwashing that Sierra perpetuated. Most of their fan boys believe they shouldn’t pay MSRP and have come to believe that mark downs in excess of 25% before the season start are normal. By stopping this on a massive worldwide scale we’ll start to see a healthier industry both from the retail aspect to the manufacturing. MSRP has always existed so that companies covered their expenses (i.e. materials, marketing, product design, labor, team development) then the shops had their mark up on it for their costs (i.e. rent/mortgage, salaries, marketing, team development, grass roots/local scene development). Which honestly after 14 years of working in shops I can tell you the mark up doesn’t make a shop owner rich by any means and barely pays the bills.
Right now as we watch this shop reach the end of its life span we can only speculate on everything that is going to happen. But as the ball has been in motion and the 800 lb. gorilla in the room has finally been spotted hopefully more companies, industry people, and customers realize what is happen.