Humbled but hopeful, Handy hits road to reorganization

Houston-based hardlines co-op Handy Hardware Wholesale submitted papers for their much-anticipated plan of reorganization March 6.

The 1,300-member regional co-op filed for Chapter 11 bankruptcy in January. Whether Handy can return to its place as a meaningful and profitable player in the hardware business remains to be seen. This much is certain: What was once $27 million in member equity in Class A and Class B shares has vanished.

"The fact that the dealers lost that investment is really bad — a disappointing situation," said Morrie Aaron, president of MCA Financial Group, Handy's hired-gun financial advisory firm that specializes in restructuring. "But the mission of Handy will continue. And that is to be a low-cost no-frills supplier focused on a high level of customer service for its members."

According to Aaron, the judge will review the plan for about 30 days. The plan will be presented to creditors and members around April. At that point, current members will have a 30- to 45-day window to purchase shares -- at a price of $3,000. Aaron said he expects the plan to be approved and confirmed by the court in late June.

Meanwhile, there is no shortage of competing distributors that see opportunity in Handy land. Handy member Virgil Cox, of Cox Hardware in Houston and currently a member of Handy's board, said he has been approached by reps of numerous distributors since Handy's financial woes struck.

"They wouldn't be doing their job if they didn't come out here," said Cox, who is currently a member of Handy's board. "Nobody has come in talking trash. In my experience, they come in and say, 'We just want you to know we're here.' "

Cox remains loyal, and others remain loyal, too. Handy's VP merchandising Mickey Schulte said the co-op has lost about 40 members as a result of the bankruptcy-related problems. Membership dipped from 1,350 to 1,310. "We're very pleased that they have stuck with us."

However, some of those members have shifted their purchases to other distributors. "We have had many members move SKUs to the competition," said Aaron. "But we will expect and hope that a lot of that will come back to Handy over time."

According to Handy's stats, fill rates have risen from the low 80% range in early March to the high 80% range in late March. Schulte said the co-op is working toward a return to its traditional mid-90% level of fulfillment.

Cox said fill rates have been getting better. "They have a valuable mission that they perform. That is getting bread-and-butter items to us at a very low-landed cost."

Several Handy members, who asked for anonymity, told HCN they too would support the co-op, as long as it can continue to deliver.

"We're still waiting the situation out," said an executive of a multi-unit dealer. "Depending on what they present to the dealers, that will determine the strength of the group as it goes forward."

One Texas dealer said his company felt a "moral obligation" to stay with Handy. "If they can continue to supply, we will continue to buy from them," the dealer said. "Why wouldn't we?"

Some Handy members say they have reasons to stay, as long as the co-op can deliver low prices and good service. Handy says a new board will be constituted as part of the reorganization. A new CEO is being recruited. And in February, Handy Hardware hired J.R. Ferguson, a former senior distribution manager for Office Depot, as director of operations.

"We're still members," said an executive of another retail company. "And as far as I know, they are going to be able to come out of Chapter 11 with this new credit line they've secured. They simply invested in assets to grow at the wrong time."

That brings the story to the Meridian, Miss., distribution center. At the groundbreaking in 2009, it was described as a $20 million, state-of the-art facility poised to push the company to new markets in the Southeast. But Handy incurred more than $30 million of debt in connection with the building and operation of the facility, due to operational challenges and the economic environment at the time of opening. It closed Dec. 31.

"We have had many members move SKUs to the competition. But we will expect and hope that a lot of that will come back to Handy over time."

— Morrie Aaron, president of MCA Financial Group

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