The Stein Mart bankruptcy: How it all ended
Posted by Carlos Renteria on
D. Hunt Hawkins spent his last full day in his 10th-floor office at the former Stein Mart Inc. building dressed casually and waiting for his office furniture to be moved out.
It was Nov. 13, three months and a day after Stein Mart’s Chapter 11 filing in U.S. Bankruptcy Court, and time to leave the Downtown Southbank headquarters at 1200 Riverplace Blvd.
Hawkins, as CEO of the Jacksonville-based off-price fashion and home-goods retailer, already had removed his personal belongings. A backpack and coffee cup remained, along with other miscellany.
“Mine’s all gone,” Hawkins said. “That was a difficult day, getting my personal belongings out of here, because I’ve been in this office a long time.”
He’s been there 26 years.
The sign was off the Southbank building. Liquidators were down to the “Last 9 days!” of selling the remaining HQ furniture and fixtures.
A handful of executives and IT specialists prepared to move to a Baymeadows satellite office as they wrapped up business.
Hawkins is down to two days a week, “just to help close things out.”
He wasn’t taking the desk, credenza and other office furniture, by the way. A buyer picked those up the next day.
Stein Mart leased about half of the 10-story building. What’s left of the headquarters tables, chairs, lamps, artwork and other furnishings is on that top executive floor.
The sale is open to the public 9 a.m.-4 p.m. Nov. 19 and the liquidator wraps up Nov. 20.
What’s not sold stays with the building landlord.
“Then we’ll abandon the offices, probably the week of Thanksgiving, but no later than the end of the month,” Hawkins said.
“The only thing required under bankruptcy is that we take the sign down, which we did.”
It came down Nov. 5.
“That was probably one of the saddest things, watching the sign come down.”
A ‘gut-wrenching’ Zoom
Hawkins considered his last full day with mixed emotions.
“The reality was, I’m almost 62 years old and I was really working toward retirement anyway,” he said.
He hadn’t expected to be there.
In January before the pandemic, Stein Mart’s board had agreed to sell the company to Kingswood Capital Management LLC and to an entity managed by Chairman Jay Stein.
“They pretty well indicated that I was going to be heading off into the sunset,” Hawkins said.
Then the pandemic forced nationwide shutdowns in March, which crushed retail sales. The merger was called off in April. Talks resumed, unsuccessfully.
“You didn’t expect to go out this way. You prepare for a lot of contingencies, you look at a lot of different things and you think you’ve got everything under control and then suddenly a pandemic comes and they shut you down,” he said.
Stein Mart operated 281 stores in 30 states, with most locations in the South and the Sunbelt.
The stores closed at the end of business March 18 and started reopening in April.
“The vendor community, once we reopened, they were working with us pretty well,” Hawkins said.
He, Stein Mart President MaryAnne Morin and Chief Financial Officer James Brown were optimistic they would pull through.
They thought it might take a year to “come around the corner,” but that it was possible.
Instead, what was around the bend was another surge of COVID-19.
“When the resurgence hit Florida, hit Texas, hit Arizona and California, and that’s almost 45% of our stores, sales just plummeted and we just couldn’t keep up at that point,” Hawkins said.
He, Morin and Brown kept the board apprised.
They had talked with Wells Fargo, the lead banker, and Gordon Brothers, the term loan holder.
“We were looking to them for a little bit more time, and they were looking and going, ‘Nah, it’s not going to work, guys.’”
Hawkins said he and Brown knew it.
“MaryAnne really was trying desperately to make it work. It’s not that James and I weren’t trying desperately to make it work, but you could read the cards, and the cards did not say it was going to work,” Hawkins said.
“The cash flow indicated we would need more help from our lenders or other third party.”
Stein Mart sent Worker Adjustment and Retraining Notification Act notices for the headquarters and the Atlanta distribution facility late Aug. 11 about impending layoffs.
The company filed for bankruptcy protection the next day.
Hawkins spoke to the management staff upon the filing.
“It was difficult. That was the hardest part. I wasn’t going to do it via email. I was going to talk to them,” he said.
Stein Mart set up two Zoom meetings to tell associates “we had to file.” One was with the corporate office and the other was with store managers and assistant managers.
Corporate employees heard first and those in the field were told about a half-hour later.
“I wanted them to see my face. I wanted them to hear the emotion in my voice because it wasn’t something that I was relishing doing,” Hawkins said.
“But it also wasn’t something that I wasn’t going to tell them personally.”
Because of Zoom’s logistics, Stein Mart didn’t take questions at those meetings. It sent out questions and answers soon after, and associates could log onto an internal site to ask more.
The company gave news releases and information to distribution and store managers to share with their associates.
“The HR staff has been fabulous. They have answered more questions and provided more unemployment documents, provided more letters for landlords and all the things that have to go on to help folks get on with their lives, and give them as much help as we could possibly give them,” Hawkins said.
Stein Mart was not permitted to pay severance or accrued vacation because of the bankruptcy filing. It was limited to helping with HR support and to explain unemployment benefits.
“The lack of severance or vacation pay that had been accrued was a sore spot,” Hawkins said.
As of Feb. 1, Stein Mart’s workforce comprised about 9,000 employees, including about 350 based at the headquarters as well as the stores and three distribution centers.
“We had somewhere around 9,300 associates, and I feel like in some ways we let them down,” Hawkins said.
The store liquidation sales started with the filing and concluded Oct. 26. Of the original 280 managers, about 240 – a “very loyal employee base” – still were on board when the stores closed.
“I’m sad for them,” Hawkins said,
“But as I told everybody, you can’t look at anything you did that caused this. Our people, everybody from MaryAnne to everybody in the stores, did everything right,” he said.
“It’s just when you get shut down from a pandemic it becomes incredibly difficult,” he said. “It’s nothing to hang their head about.”
Advertising Manager Melissa Cummings, who was with Stein Mart for almost seven years, was in the main Zoom meeting, where Hawkins appeared by video and Morin by audio.
“You could tell it was painful for him, gut-wrenching,” she said.
Cummings said the employees were in shock, having been told as recently as late June that Stein Mart leaders felt good about survival.
“Many of us had just been given promotions,” she said.
“But the one thing about Hunt is that he always seemed more down-to-earth and friendly toward employees than any other CEO I’ve worked for,” she said.
“Those calls that morning were hard for him,” she said. “The decisions weren’t made lightly.”
Stein Mart’s Chapter 11 petition, filed Aug. 12 in the U.S. Bankruptcy Court Middle District of Florida, Jacksonville Division, outlines the reasons for the decision.
Retailers, especially those selling apparel and accessories, lost sales and market share the past several years to e-commerce retailers.
That drove down profits.
From 2016 through August, Stein Mart’s sales declined and the company faced “the difficult task of growing sales while significantly reducing expenses in a difficult retail environment,” said the filing.
Stein Mart listed assets of almost $723.5 million and liabilities of $770.5 million in the bankruptcy filing.
The pandemic then sealed the deal. Stein Mart lost $66 million in the quarter that ended in May.
Stein Mart received a $10 million loan June 30 from the federal Paycheck Protection Program for payroll and rent and is applying for loan forgiveness.
Some employees privately say that they thought management knew more about the impending bankruptcy and closures than they shared with the associates, who did not have time to prepare, and they are disappointed that they received no severance, continued health benefits or other assistance. They say that longtime employees thought they deserved better.
“I understand their frustration,” Hawkins said. “It was tough.”
The heyday and the days after
Jay Stein’s grandfather, Sam Stein, founded the company in 1908 in Greenville, Mississippi. His son, Jake, took over in 1932 and Jay Stein became CEO in 1977.
Stein opened the first of six Jacksonville area stores in 1983, moved the headquarters to Jacksonville in 1984 and took the company public in an initial public offering in 1992.
Meanwhile, Hawkins, a Knoxville, Tennessee, native, earned an undergraduate degree at the University of Tennessee and a graduate degree in industrial/organization psychology from the University of West Florida.
Hawkins spent the first decade of his career with specialty retailer Genesco Inc., the Journeys men’s, women’s and children’s footwear chain.
At the age of 34, he came to Stein Mart in 1994 on the senior management team as senior vice president of human resources.
“I was always part of that five or six folks that was able to help form strategies of the company,” he said. “That was fun.”
When he arrived, Stein Mart had 68 stores, on its way to 293 at the peak in 2017.
Over his 26 years, Hawkins served as executive vice president, co-president and CEO as well as chief operating officer and chief administrative officer.
“You learn as an HR guy to be able to be flexible enough to work with anybody,” he said.
He lists two leadership challenges: The three-year CEO tenure from 2008-11 of former Belk Inc. executive David Stovall, who reduced inventories and generated cash but experienced difficulty driving up sales, and the six-month leadership in 2016 of CEO Dawn Robertson, who moved quickly but “maybe not as cautiously” with sales initiatives.
Hawkins counts the heyday as 2012-15, after Stovall left and Stein returned as CEO and named Hawkins and Brian Morrow as co-presidents.
Comparable store sales – sales at stores opened for more than a year – increased in each of those years, and the company’s financial health improved.
Net sales rose from $1.2 billion in 2012 to $1.36 billion in 2015 and 2016.
When Morrow left, Stein retired as CEO, remaining chairman, and brought in Robertson.
After she left, Hawkins took over as CEO in January 2017, bringing on Morin as president.
But those heyday years also had problems.
“We became way too department store-like,” Hawkins said.
Stein Mart filled its calendar with promotions, from coupons to 12- and 14-hour sales that required advertising and other “margin-erosive” actions.
“That kind of took the customer’s eye off the fact that we were really off-price,” he said.
Morin “was astonished” that about 70% of the products moved at the ticketed price, yet the company spent money on promotions that cut into margins.
“When we tested going full off-price, no promotions whatsoever, we tested that in Richmond and in Detroit, and it worked beautifully,” Hawkins said.
“I wish we had done that sooner.”
Hawkins doesn’t blame the internet as much as other retailers might.
“Everybody wants to blame Amazon and say that Amazon is a big bully. Years ago it was Walmart. Walmart was the big bully,” he said.
Both are big and powerful, but not the only factor.
“I think retailers can in some respects blame themselves because the fact is America is way over-retailed,” he said.
“What we’re seeing is the fact that consumers’ tastes are changing. It’s become a casual world and the pandemic has made that even more powerful with the fact that more and more people are working from home.”
Hawkins said Stein Mart was one of the first off-price retailers to create an internet presence and a website, which ended up accounting for about 8% of its sales volume.
Off-price retailers generally buy excess inventory from brands and profit by selling it to consumers at prices lower than in boutiques, department stores and other full-price retailers.
Hawkins said Stein Mart also was the first off-price retailer to offer in-store pickup and ship-from-store.
Stein Mart’s targeted customer was a style- and value-conscious woman age 45-65, and that was being driven lower.
Morin focused on more modern and contemporary inventory, and the company began advertising steadily on TV and digitally.
“That was helping us get a more younger-minded customer,” Hawkins said.
The sales breakdown ended up as 49% for women’s apparel; 18% for men’s; 10% for home goods; 9% each for accessories and shoes; and 5% for other.
In an effort to boost sales and customer traffic, Stein Mart reintroduced children’s clothing, which appealed to the core female customer, in 2019 and added fine jewelry.
It even set up Amazon.com Hub Lockers in some locations.
At the end, home goods became its strongest business during the pandemic.
“The customer was stuck at home,” Hawkins said.
“It was our highest margin and highest sales business, and it had not been for a long time. It was really fascinating to see a virus fix home,” he said, referring to that business category.
The moves weren’t enough, and the leadership and board decided on bankruptcy.
Asked about Hawkins, Richard Sisisky, Stein Mart’s lead independent director, said the board “felt fortunate to have him as our CEO.”
“While we were all disappointed by the bankruptcy of Stein Mart caused by COVID-19 and the resulting inability to sell the business as planned, Hunt Hawkins provided steady and solid leadership as the company navigated its way through the complicated process,” Sisisky said in an emailed statement.
“Despite all the challenges, Hunt managed the myriad of different interests with care and concern for all impacted by the proceedings.”
Stein Mart’s sales peaked at $1.5 billion in 2006. Since 2016, they slid to $1.22 billion by 2019.
The last time Stein Mart posted an annual net income was $23.7 million in 2015. It reported net losses after that.
The next move
If Stein Mart doesn’t wind up the bankruptcy by February, Hawkins will have 27 years with the company.
He turns 62 in March, when he and his wife, Sherri, will celebrate their 39th anniversary.
They have two adult sons, five grandchildren, and consider a young woman they mentored to be a daughter. She has three children.
The couple intends to relocate to their Palm Coast condo for retirement. Hawkins is thinking of consulting, but not in retail.
He also has health to consider.
He endured two open-heart surgeries – one at age 50 to replace a genetic bicuspid aortic valve.
Seven years ago at the age of 54, four weeks after dental work and travel, he ran 6 miles on a Saturday morning and didn’t wake up on Sunday. Full-blown septic shock destroyed the valve and he had emergency surgery Nov. 17, 2013.
“Knock on wood, all is well,” he said.
“Which is a good reason to retire at 62.”