Broder Bros. Bankruptcy Would Ravage Industry

By now most of you have probably heard of the potential bankruptcy of Broder Bros, the parent company of Alpha Shirt and New England Sportswear.  Broder Bros. Co has been an industry stalwart for the better part of the last 40 years and has been a pillar of the industry for the last decade.  During their rapid growth and during the free and easy credit days of 2003 and 2004 Broder went out and acquired Alpha Shirt and later in 2004 acquired NES.  Although this introduced significant economies of scale and opened markets for Broder it greatly reduced the available supplier base for distributors.  With a stellar industry reputation this was not of great concern as all three companies had long established a history of excellent service.  That may all change as a series of layoffs starting last year have significantly reduced the workforce.

One of the scarier aspects of a potential Broder bankruptcy is the reduction in distributor choices if the reorganization plan should fail.  Broder indicates it made money in the last quarter but the enormous debt they are carrying, likely as a result of all the acquisitions and increasing bad debts due to the economy are crushing the bottom line.  Within an immediate and substantial reduction in these expenses the company has stated they will be forced to file Chapter 11.  Most experts indicate less than 50% of companies that go into Chapter 11 eventually remain viable and with Circuit City recently failing after being unable to secured DIP financing one has to wonder why Broder would be any different.   Despite the optimistic projections of the governing bodies in this industry anyone on the ground working day to day will tell you sales are down 10-50% depending on the manufacturer in 2009.   Yes things are starting to get better and fairly quickly but for many manufacturers it will not happen fast enough.  Most simply cannot absorb 40% hits for quarters at a time without going into severe financial distress.  If Broder is able to secure financing and reorganize one would have to wonder whether or not customers will take their business elsewhere and also whether major manufacturers like Hanes will continue to ship.  So far they have been silent.  If the worst comes to pass the industry will lose a huge network of warehouses that have provided for expanded and more rapid distribution that customers have grown accustomed to utilizing.  It is unlikely any other distributor would be able to step in and absorb Broder as many other suppliers are already in difficulty.   Last month it was report American Apparel was in dire straits.  Beyond losing the network entire brands could vanish for at least a period of time with Columbia being first and foremost.  Others had already begun to appear at other suppliers as a potential safeguard.  Beyond that distributors will have only a few choices left and with a reduction of competition higher prices may result.  Within the next week the situation should become more clear on whether or not debt holders are interested in the proposed exchange but distributors would be wise to stay on top of the latest developments as the deadline approaches in mid-May.