Forman Mills sold to NYC retailer amid threat of bankruptcy, layoffs

Discount retailer Forman Mills expected to lay off 245 workers in early August if a proposed sale fell through, according to a letter filed with the Pennsylvania Department of Labor and Industry.

But the last minute sale did go through, the company announced on Thursday afternoon.

Forman Mills has deep roots in Philadelphia and was founded in 1985 by Richard Forman.

In 2016, he sold the retail business with 3,000 employees and dozens of stores to Goode Partners, a private equity firm in New York City. The firm borrowed $32.5 million to support the equity investment it made in Forman Mills.

New York City-based Shopper’s World, owned by the Dushey family, will acquire Forman Mills for an undisclosed price, according to a press release. The deal will double the retail store footprint of department store Shopper’s World as the company expects to “continue operating all Forman Mills locations,” said Sam Dushey, CEO of Shopper’s World in a statement.

“We’re pleased to be joining a company with such longevity, strong community roots and financial stability,” said Mike Kvitko, CEO of Forman Mills.

Forman Mills previously told regulators it anticipated to shutter the four remaining Philadelphia retail locations and its footprint in Lehigh, Montgomery, and Delaware counties, the June 12 letter details. Now under ownership of Shopper’s World, Forman Mills looks to re-open its Philadelphia store at 48th and Market Street.

Earlier this month, Kevin Hess, the chief financial officer of Forman Mills, told regulators in the letter that “absent a sale the company will file for Chapter 11 [bankruptcy].”

Filing for Chapter 11 bankruptcy protection is a legal method for the company to reorganize and continue operations, but in recent years it’s often not used for that in practice, said one New Jersey bankruptcy attorney with decades of experience.

“Many of the cases these days are not reorganizations,” said Art Abramowitz, of law firm Sherman, Silverstein, Kohl, Rose & Podolsky P.A. “They’re either organized liquidations, such as you’ll see with Bed, Bath and Beyond. Or are just plain sales.”

The company’s assets could have been purchased out of bankruptcy “free and clear” of all claims, which is otherwise difficult to do. Typically, secured creditors like banks are expected to be paid first, and then any vendors owed with unsecured claims.

Forman Mills filed an identical letter with regulators in Wisconsin warning of layoffs at its retail locations there. It has more retail locations in New Jersey, Delaware, Maryland, Ohio, Illinois, and Michigan but has not yet filed WARN notices in those states.

The Pennsauken, New Jersey-based company laid off 119 corporate employees at its headquarters in mid-June. Attorneys filed a class action lawsuit against the business for failing to give workers sufficient notice and could be responsible for millions in severance payments.

But if Forman Mills seeks bankruptcy protection the class action lawsuit proceedings would be paused.

“When a company files for Chapter 11, it stops the enforcement proceedings or collection proceedings by third parties. That means all litigation is stopped,” Abramowitz said.