End of the lines Liquidators — ”Financial SWAT Teams“ — help get the most out of going out of business

By Brent Hopkins, Staff Writer

Their resumes read like the obituary of American retail. Gemco – closed. Webvan – sold off. Gimbels – sliced up. Strouds – on its way into history. Kmart – chopped down and hanging on. Montgomery Ward – dead.

All share a common theme: Stores that once enjoyed a spot of prominence in the retail world but faltered and fell prey to sharper competitors. And as the chains withered and shrunk, they ended up in the hands of the liquidators – a group of highly specialized sales experts who, propelled by a soft economy, now find themselves as busy as ever.

Most shoppers know the liquidators’ work – the going-out-of-business signs, the radio ads, the sandwich board displays trolling the streets to attract business. Billions of dollars can flow through their hands in a year, and they're involved in some of the biggest, most high-profile deals in the retail world, but remain comfortably out of the spotlight.

”Companies know how to open stores, not how to close them“ said Albert Nassi, managing member of the Westlake Village-based Nassi Group. “And are the creditors really going to trust a company that just put itself out of business?”

No, according to attorney Jess Bressi, a partner with Cox, Castle & Nicholson LLP, a Los Angeles-based law firm specializing in bankruptcies. When a company gets to the point where it needs to liquidate, it needs cash quickly to pay its bills and liquidators are the best at generating it.

”When you’re holding the going-out-of-business sales, retailers are trying to reduce employees and reduce liability,“ Bressi said. ”And it's hard to keep employees on when they know they’re on an all-expense-paid trip on the Titanic. But the liquidators, that's all they do, so the employees know that they'll still get a paycheck.“

While managing a dying chain and selling it off until nothing remains but bare walls and forlorn signs may seem like an odd business to be in, liquidators relish the challenge. ”It's like a melting ice cream cone“ said
Paul Buxbaum, chief executive officer of the Calabasas-based Buxbaum Group. ”You can't put it back together, you can only wipe it off your arm.“

Those meltings are hardly insignificant – as in the case of Kmart’s dramatic liquidation that resulted in 600 store closures and the sell-off of $3.5 billion in merchandise. In a well-managed sale, creditors maximize their return – between 50 cents and 70 cents on the dollar – stores close in an orderly fashion and liquidators get to keep a small percentage of the sales in return for their efforts. It's an unusual business, one with millions of dollars at risk with each sale, but in the last 30 years, it's grown into a key part of American commerce.

Now largely controlled by a group Nassi jokingly calls "The Magnificent Seven," the liquidation industry grew from the death of the White Front department store chain in 1973. The television and major appliance
specialist folded, leaving general manager Gary Mintz and Sam Nassi, Albert's father and White Front's executive vice president of promotion, in charge of selling off $30 million in merchandise from 22 stores. They worked with David Buxbaum, Paul's father, who'd leased the chain's health food departments, to manage the final days of White Front.

"We had a nice run, but we couldn't handle the volume of the competition," recalled Mintz, who's now chairman of Great American Group, based in Woodland Hills. "Zody's, Kmart, Gemco, they all took pieces of our business, and we had to get out of it. Now, our competitors are mostly gone, and I had a hand in most of their liquidations."

Intrigued by the business, the three men looked for more troubled chains, handling Arlen's Department Store and the then-monumental closing of W.T. Grant's in 1976. With a billion dollars of inventory at stake, Mintz calls this the "watershed event" that gave birth to a proper liquidation industry. The three men eventually founded their own firms, while others such as the Schottenstein Bernstein Capital Group, Hilco Merchant Resources, Gordon Bros. Group and Ozer Group sprung up in Chicago and the East Coast.

It's a competitive, almost secretive world. All the major players are privately held and guard their revenue
numbers closely, not wanting to tip off their rivals to their financial stead. But while they may throw sharp elbows while in bankruptcy court, bidding for the rights to a meaty sale, all seem to co-exist peacefully outside.

"You can have fierce competition, bidding, bluffing, glaring, then when they win, we shake hands and wish them good luck," Albert Nassi said. "You hate their guts for five minutes, then you're back to getting along."

He and partner Daniel Kane recently won the Strouds liquidation after wrangling with Buxbaum, then dined out with Paul Buxbaum and David Ellis. Once the deal's won, however, there's little relaxation
until the sale's finished in the next three months. Just to bid, companies spend an intense week of negotiation to determine the liquidatee's financials to see how much inventory can be sold, where its stores are, and whether it can be turned around or should just be sold off entirely. They assume responsibility for stores' payroll, rent, utilities and advertising, and they have to pay up front.

"It's a risky business," said Ellis, Buxbaum's president. "You get a call and in four to six days, you have to know if you can put up tens of millions of your own money. We come in like a financial SWAT team to see if we can do it."

While in the early days liquidators could expect fairly good returns, competition among the seven has driven their profits into the single-digit percent range. With a small return and big cash outlay, they have to bid the deals very carefully or risk losses.

"If we think something will do $60 million and it does $57 million, we're going to lose money," said Kane, also a managing member of the Nassi Group. "We have six to 10 weeks to get out of a store, and if we do something to alienate a consumer, they'll never come back."

And the woes that afflict a normal store, like a rainy weekend or disturbing economic news, get magnified when your entire business plan runs on a 90-day calendar. Since morale can be problematic at chains where employees know their days are numbered, the new operators offer sales bonuses and guarantee employment for at least a set amount of time.

The sales themselves are exciting affairs, making the year into a perpetual holiday season where each day has a sale, often jammed with people. And while the longtime pros who've sent off the stores they shopped at for years enjoy the rush of the sales, all regard the process with a reflective nature. Once the sale's done, the lights go dark, employees lose their jobs and another famed name ceases to exist.

"It's odd, because you step back and say, this is an icon," Ellis said. "But it's part of the evolution. If we weren't here, the banks wouldn't have an alternative. We didn't put the company out of business – all we can do is help them out."

Brent Hopkins, (818) 713-3738 brent.hopkins@dailynews.com