On Trisports.com's Chap 11 filing

Industry fixture Trisports.com has filed for Chapter 11 bankruptcy protection. What follows here are facts and impressions as a result of my own reporting over the past few days, as well as data aggregated from other Slowtwitch resources (including historic polls and recent surveys, and also incorporating recent discussions with some of Trisports’ vendors).

This is a bit of reporting and a bit of opining (especially the last paragraph or two). Please pardon for the admixture, and I hope it's apparent when I exit and enter the writing of fact, conjecture, prediction and soliloquy.

Trisports.com filed for Chapter 11 protection on June 14th, 2013. In a letter sent to all its vendors, Trisports’ owner Seton Claggett named as the proximate cause of its action a surprise decision by its bank, Bank of the West, to call an equipment loan and a line of credit, that is, to require Trisports to accelerate all outstanding balances, forcing Trisports to pay the amounts in total at once. The equipment loan by itself totaled more than $700,000, and funded the cost of a computer hardware and software infrastructure that totaled about $500,000. The balance of the loan funded a solar system for the building in which Trisports is housed.

About the solar system, which had a face value installation price of $650,000: I’ve heard criticism of this project as an extravagant spend. However, about $400,000 of the cost was covered by government incentives. The system offsets or generates about $3000 a month, according to Claggett, and the recapture period is projected to be 7 years, typical or even aggressive for a solar grid-tie system. I don't know the term of the equipment loan, however $250,000 borrowed at 6 percent interest over 6 years would yield a monthly payment of just over $4000/mo, and that would put Trisports out of pocket just over $1000/mo. as a result of this expense, which means this is not the cause of Trisports’ troubles.

Rather, if you look back 18 months, we ran a poll here on Slowtwitch asking where our readers buy their bike and tri supplies online, and 15 percent of Slowtwitchers chose Trisports. This was equal to or greater than the market share of any etailer on that poll. Further, 31 percent of Slowtwitchers indicated in a separate poll their preference to shop even more at Trisports.com, assuming this retailer offered even more of what they wanted to buy at the prices they intended to pay.

We took this same poll 3 months ago and Trisports’ market share had almost halved among Slowtwitchers, while almost every other online retailer pretty much held par over the last 18 months. The one obvious outlier was Amazon. Trisports and Amazon switched places: Trisports went from 15 percent market share to 8 percent, Amazon went from 7 percent to 16 percent over these same 18 months.

Obviously, Slowtwitch is a slice of the tri market and not the entire market, however, if it can be considered a proxy for the market, it’s easy to identify one problem. Amazon specifically seems to have taken a bite out of Trisports’ niche. We’ve written – I’ve written – over the past 8 months that the decisions by retailers and manufacturers to sell directly to Amazon, or to become Amazon partner stores, will lead to a cracking in the lattice of the bike and tri specialty store market.

We’re taking a survey of retailers as we speak, and for these brick and mortar stores the tri market is not growing. Out of the 150 retailers who’ve responded to our survey a fourth report that their tri sales are about the same year-over-year, and the other three-quarters are evenly split between those who are up in their tri business and those who are down. Triathlon is a significant market, but is no longer on the steep upslope, and businesses in all segments are forced to fight for their survival and prosperity.

There were signs that Trisports needed to retrench and dig in. Yes, it closed its newly opened Tempe store only a few weeks ago, but in August of last year Trisports laid off dozens of employees, a sign to anyone that Trisports’ double and triple digit annual growth years were at an end, the business had leveled, or had started a slide in the wrong direction.

Chapter 11 protection is a blow to the image of any company, however the world’s largest airlines and auto companies have rotated in and out of chapter 11 in recent years. This filing allows Trisports to fend off Bank of the West’s note demand. As to whether Bank of the West reluctantly sent this demand to Trisports as a result of new, tighter bank regulations it was forced to honor, or whether Trisports missed a series of covenant executions forcing the bank to act, I do not know. What I do know is that Trisports’ immediate future is more in the hands of its vendors and customers than anyone else. If Trisports cannot get product, it is finished as a company. If you do not buy, it is finished as a company.

So far, I have not found that vendors are unsupportive of this retailer. Indeed, most note that over the long term Seton Claggett has made each of them a lot of money. Millions of dollars in sales for quite a few vendors since the turn of the century, which is how long Trisports has been servicing the triathlon community. I have not found a vendor who is not shipping Trisports as a result of this filing. This isn’t to say that vendors don’t exist who fall in that category, however, Trisports must continue to pay its bills under Chapter 11 protection and vendors are used to operating in this environment. It bears mentioning that large and important bike brands – Cervelo and Cannondale come to mind, and I could name companies larger than either of these – found themselves in trouble at one time, yet prosper today.

What does this mean for you as a customer? Is it safe to buy from Trisports.com? Me? I would not hesitate to buy from them. Warranties will certainly be honored by any manufacturer, should the worst befall this retailer. My guess is that this business will not fail. It may not continue to exist in precisely the way, with precisely the same ownership structure, as is now the case, depending on whether this august retailer is able to steady the ship and sail on. I would be surprised if we all aren’t still buying from some permutation of Trisports.com well into the future, and whoever controls that permutation would commit business suicide if it failed to honor every deposit, warranty, credit incurred by any prior iteration of the company.

Finally, as far as I can tell, Trisports faces no imminent Sword of Damocles in the form of an upcoming, impactful court decision. Creditors are not asking for a liquidation. This is probably because Bank of the West owns a blanket UCC filing on otherwise unencumbered assets, and I’ve spoken to some of the (few) secured creditors, and the Bank of the West’s perfected security interest may take priority even over specified unpaid-for inventories belonging to the sellers.

The business seems on a stable footing. Vendors are shipping. The ultimate success or failure of Trisports.com is not up to the court, its creditors, including the Bank of the West. The success really is in the hands of you, the readers, and the rest of Trisports.com’s customers. If you buy, and in sufficient quantities, this retailer will survive and thrive. If you eschew this retailer in favor of other options, the future of this business, in its current form, is dim, as you could say that about any retailer, or any business.

On a personal note, I've gotten to know Seton and Debbie Claggett, and they are tough. There is one more actor in this play who will determine the outcome. I see in Seton a bit of the same sorts of instincts I notice in myself, and what comes to mind is a quote from the movie — lifted word-for-word out of the book (which I just read) — The Outlaw Josie Wales: "Now remember, when things look bad and it looks like you're not gonna make it, then you gotta get mean. I mean plumb, mad-dog mean. 'Cause if you lose your head and you give up then you neither live nor win. That's just the way it is."

I spoke to Skip McDowell, owner of Nytro.com, and he was genuinely saddened by this, on a personal level and also just the business ramifications. This, even though Trisports is a direct competitor to Nytro. Most in this business to whom I've spoken feel that it's best business interest for everyone if Trisports.com survives, and prevails. I'll report to Slowtwitch readers further notable developments.