The probable short life of Loves Furniture is an exploration in opportunity gone awry. Since its founding in May last year, after acquiring assets and inventory from bankrupt Art Van Furniture, the retailer immediately encountered a squall of operational hardships that left it running from a mounting cadre of creditors.
With five lawsuits filed by suppliers since Dec. 29, the Warren-based company succumbed to bankruptcy protection this week in an attempt to stave off an unceremonious end to its just eight-month endeavor. The journey of Loves Furniture isn't over, yet, but shackled with growing debt and creditors, its future is uncertain as it hopes to avoid Art Van's fate of liquidation and limp out of bankruptcy with at least a fraction of the business it formed.
Examining the lawsuits and Loves' actions reveal a company that's rich on plans but too cash poor to execute them.
"From the onset, they had a difficult needle to thread," said Bill McLoughlin, editor-in-chief of Greensboro, N.C.-based industry magazine Furniture Today. "The environment in which they launched in the spring, at the onset of COVID, challenged many brick-and-mortar, and apparently without finances in order, proved to be nearly impossible market conditions."
Mack Peters, CEO of Loves Furniture, did not respond to emailed questions about the company's troubles or its plans moving forward.
Loves Furniture was formed in May last year with plans to acquire 27 stores and inventory out of bankruptcy and build a new furniture empire in the void left by the defunct Art Van. The plan was orchestrated by Florida's US Realty Acquisitions LLC, founded by investor Jeff Love, and the firm succeeded in acquiring the Art Van assets and leases of Art Van out of U.S. Bankruptcy Court in Delaware for a mere $6.9 million.
The deal included 17 Michigan locations as well as Art Van and Art Van-owned Levin Furniture and Wolf Furniture locations in Pennsylvania (five), Illinois (two) and one each in Ohio, Virginia and Maryland.
The new upstart retailer had big plans to reopen the former Art Van stores in only weeks and hire more than 1,000 employees, most of which were former Art Van workers. Loves was then led by new CEO Matthew Damiani, a former vice president of enterprise operations and customer experience for Art Van.
"This is not Art Van 2.0," Damiani told Crain's in May. "This is a different company with a different style, a different selling strategy and marketing voice. Our goal is to reengage with the customers that stopped shopping at Art Van or Levin, the ones that left those brands because they didn't feel a connection."
Damiani, who was hired by Art Van's private equity owners Thomas H. Lee Partners LP in 2017, said the stores would be more modern in appearance and abandon Art Van's more aggressive sales tactics, relying heavily on marketing and sales leads driven through technology.
He vowed Loves wouldn't succumb to the financial pressures that destroyed Art Van.
"The current situation is unique because we have an ownership team that acts like a family business instead of traditional private equity group," Damiani said. "They are really supporting us and our recommendations on what we want to be able to bring to market. We've brought in a really talented, passionate group from the former Art Van and outside the company. We're bringing something to market that we are all very proud of that's rooted in the communities we serve."
But Damiani and company underestimated the pandemic's impact.
"The COVID-19 crisis clearly produces a lot of headwinds, but this presented a great opportunity to take advantage of the current market conditions," Damiani said in May. "The opportunity is not just in what we acquired, but in customer need. I'm referring to the hundreds of millions of sales they are vacating in this market. We believe if you go to market with the right approach, right products and fantastic service, we'll earn the right to thrive for a long time."
By June, Loves was contracting suppliers for new signage to replace the old Art Van moniker donning its buildings, printers for mail advertising, millworkers to outfit its stores as well as placing orders for furniture.
Stores began opening more broadly in July. But its new customer base was quickly unimpressed. Loves social media pages were beginning to flood with complaints of long delays for delivery and unresponsive customer service.
"Not sure what I am supposed to do when my baby arrives any day now and my parents cant stay with us during a pandemic because the bed you sold to us eight weeks ago isn't here?," one customer wrote on Twitter. "I have been lied to at every turn ... "
Loves' attorney in the bankruptcy, Max Newman, partner at Detroit-based Butzel Long PC, noted the customer service issue.
"We had a lot of negative publicity from not getting customers' orders," Newman told Crain's in an interview. "We wound up way under water pretty fast."
Peters, who was hired in December after Damiani departed the company, said supply chain issues crippled Loves' success.
Peters told Crain's in an interview in early December that the pandemic slowed shipments as well as caused rising prices from distributors in Asia. Freight prices from Vietnam doubled between summer and December, he said.
Furniture makers have faced shortages of key materials, such as block foam and even chemicals, since the coronavirus exploded. For example, Chemical giant BASF declared force majeure in July at its toluene diisocyanate plant in Louisiana. The chemical is used in the production of polyurethane flexible foams used in upholstery, mattresses and automotive seats. Regular production didn't restart at the plant until last month.
In response, Loves dumped seven of its stores as part of a cost-savings plan. It transferred its five stores in Pennsylvania to Levin Furniture, which Art Van acquired in 2017, and said its stores at 8300 Wayne Road in Westland and 425 E. Eisenhower Parkway in Ann Arbor were to be taken over by an undisclosed regional chain. Later in December, Loves started liquidating inventory at 10 stores, including those in Waterford Township and Port Huron, and preparing them for permanent closure.
McLoughlin said the materials shortages and increased orders from those remodeling homes during the pandemic has created a bottleneck for the entire industry — a problem that's exponentially worse for Loves.
"Many orders that came in at the end of last year won't be filled until the end of the first quarter of 2021," McLoughlin said. "That's a challenge for the entire furniture industry. There's a real shortage of product. Because of this shortage of inventory, some manufacturers have had to allocate inventory and have chosen to supply their best customers first. A new organization like Loves would likely have lower priority than more well-established organizations."
Peters recognized in December that the company is facing inventory problems as an ongoing issue.
"It's been difficult to move forward in the stores as the supply chain for getting furniture remains quite difficult," Peters said. "We're having problems with vendors and suppliers."
The problems also appear to be Loves' inability to pay its bills.
Mississippi-based Southern Motion Inc. and Fusion Furniture Inc. filed a lawsuit against Loves on Dec. 31 for breach of contract, alleging the retailer has failed to pay on a $1.8 million bill for merchandise.
Detroit-based Fairmont Sign Co. alleges in a lawsuit filed in Oakland County on Jan. 5 that Loves owes more than $54,000 for sign work. Wixom-based Modern Millwork Inc. alleges in an Oakland County lawsuit that Loves owes it more than $153,000. Roseville-based Graphics East Inc. alleges in another Oakland County lawsuit that Loves owes the company nearly $342,000. All the lawsuits allege a breach of contract by Loves.
But it's likely Loves' quarrel with the $2 billion trucking and warehousing giant Penske Logistics, a subsidiary of Bloomfield Hills-based Penske Corp., drove it to seek protection in bankruptcy court last week.
Penske Logistics declined to discuss the ongoing case.
Loves inked a deal with Penske Logistics in July for the company to manage shipping from its Warren warehouse as well as manage the operations of the 1 million-square foot operation at 6500 E. 14 Mile Road in Warren, according to a lawsuit filed by Penske Logistics in Oakland County Circuit Court on Jan. 5.
Loves quickly fell behind on its payment obligations to Penske Logistics. As of Dec. 29, Penske Logistics alleges, Loves owes $1.6 million.
In November, Penske Logistics notified Loves it intended to assert a warehouseman's lien on the warehouse inventory, according to the suit. A warehouseman's lien allows a warehouse operator to hold and sell goods in its possession to offset against any shipping, handling and storage fees owed.
Loves quickly made additional payments to stave off the lien, Penske Logistics alleges in the lawsuit, but not for long.
On Dec. 29, Penske Logistics issued another warning that it was exercising its lien on Loves' inventory and would begin to sell goods on Jan. 23. Loves responded by revoking Penske Logistics' employees access to the warehouse, the lawsuit alleges.
The lawsuit also says Loves was working to move the inventory out of the warehouse during the legal dispute. With no cash reserves, the inventory is the only thing of value Loves holds.
"In the last few days, Penske representatives have also observed truck traffic in and out of the facility, which likely indicates Loves beginning to unlawfully remove the goods from the warehouse," the lawsuit alleges. " ... Loves is of the belief that the lien will not be available to Penske once the goods are no longer in the warehouse."
The Chapter 11 bankruptcy filing by Loves came a day after Penske filed its lawsuit.
Newman told Crain's the company is restructuring its debt in hopes of maintaining up to 12 stores in Michigan. The company is also going to seek court approval for a contract with Planned Furniture Promotions, "which will make inventory available to customers at attractive prices at a time when most furniture stores are struggling to maintain inventory," Newman said.
Planned Furniture Promotions is an Enfield, Conn.-based events company that creates the "going out of business sale" marketing blitzes for companies to generate immediate cash flow.
But even if Loves manages to rid itself of its debt obligations in bankruptcy, it would re-enter a market in which it couldn't succeed. The bankruptcy is merely a second chance at the same market. McLoughlin is skeptical the company will avoid Art Van's fate — total liquidation.
"(Loves) wanted to retain the credibility of Art Van ... to be a freestanding organization on the bones of Art Van," McLoughlin said. "But if you look at the market conditions … the likelihood they will get inventory on a continual basis ... I think the most likely outcome is liquidation."
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