DirectBuy Aims to Eliminate $200 million Debt in Chapter 11 Bankruptcy

by San Antonio Attorney

DirectBuy, a national brand based in Indiana, has filed for Chapter 11 bankruptcy and plans to eliminate debt by selling itself to lenders.

The struggling buying club, which sells factory-priced products to members, said it has made a deal to sell the company to lenders PennantPark Investment Corp.  and Bayside Capital.  During its peak, DirectBuy had a million members all over the country, and over 160 showrooms in the U.S. and Canada.  Recently, it has been shuttering its franchised brick-and-mortar stores and aspiring to become an online retailer like Amazon.

The home furnishings and home improvement retailer was founded by Jim Gagan in 1971.  In 2007, it was acquired by private equity firm Trivest Partners.  It has gotten into trouble for its hard line sales tactics, but has already altered its marketing strategy and reduced the membership fee to $39.95 every month instead up to $6,000 it originally charged for memberships within three years.

At present, the nationwide buying club has about 200,000 members, has changed focus to online selling and plans to shut down all its remaining stores.

The company owes $200 million to creditors, but is reorganizing to be a smaller business that would make between $3 million and $5 million in earnings per year.

DirectBuy filed for bankruptcy in Delaware, and intends to carry on its operations as it sorts out its debt.

Almost 100 of DirectBuy stores had stopped operating.  Recently, it has rolled out some digital initiatives such as shopping by chat and app.

There are 400 employees in Merrillville, and their salaries and benefits will not be affected by the bankruptcy.  DirectBuy is also hiring people for its call center and headquarters.  Also, vendors and suppliers will be paid and members will receive the goods they have bought.


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