[Business] Hastings files Chapter 11, toy companies are losing millions

With Hasting officially filing for Chapter 11 bankruptcy protection on Monday, the filing documents show just how much is owed to its suppliers of pop culture merchandise. With millions owed, will this have a bigger impact on some of our favorite pop culture companies?

In the document filed on Monday, Hastings listed the top 30 creditors who have not been paid.  As expected Universal Studios Home Video, Fox Home Entertainment, Buena Vista, Warner Home Video, Sony Pictures top the list with a combined outstanding debt of over $13 million.

But what about some of our favorite pop culture companies?  In the amended list of creditors who have the largest unsecured claims who are not insiders, the list includes:

• ACD Distribution (game distributor) – $836,981.11
• Funko (toy manufacturer) – $2,589,509.33
• Diamond Book Distributors – $1,644,430.48
• Hasbro (toy manufacturer) – $347,420.80
• Bethesda (video game manufacturer) – $297,499.25
• Ultra Pro (gaming supplies) – $259,683.43
• LEGO (toy manufacturer) – $236,194.77
• PSI (game distributor) – $208,521.52

While LEGO can easily shrug off a quarter of a million dollar loss, game distributors could really suffer because of this.  The most concerning debt on the lists have to be Funko, the makers of Pop! Vinyl and Dorbz figures, which is owed $2.5 million, and Diamond Comic Distributors which is owed $1.6 million.  While Funko may be able to shake the debt, comic sales continue to be shaky ground, especially last month when comic sales dropped, which makes me more concerned for the comic book distributor.

I did make a call to Diamond regarding this, but they would not make a comment at this time.

There are a lot of people brushing this news off because they don’t have a Hasting’s store in their town. Hastings has 126 stores in mid-sized cities around the country, so there is a better than likely chance there isn’t a store in your area, but when you look at the money that is owed to Diamond Comic Distributors, Funko and others, this bankruptcy could very likely cause a problem if the debt negatively impacts those companies.

Hastings updated its website to include a breakdown of the changes occurring as they seek a buyer for the company.

June 13, 2016

To Our Valued Customers,

At Hastings, our mission is to bring you the array of entertainment products, collectibles and basics that have made us a fixture in our local communities while also creating experiences that delight you and grow with you over the years. We have been working diligently to transform our stores with these objectives in mind and already have completed 20 refreshed stores with overwhelmingly positive reviews.

We believe we are on the right path, but we need additional financial support to fully execute our plan for the future. That is why we have initiated a comprehensive process to evaluate potential buyers for our business and, as part of that sale process, have filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code along with our corporate parent (Draw Another Circle) and sister brands (Movie Stop and SPImages). The Chapter 11 process will help to prepare our business for the intended sale while also providing additional protections and financing to allow us to serve you as usual.

Please be assured that Hastings stores and e-commerce business remain open and continue to bring you the superior selection of multimedia and entertainment products you have come to expect from us. In addition, our Passport program is continuing with all your accumulated benefits intact, and we continue to launch exciting new promotions on an ongoing basis.

At this time, we will be changing a few other programs, as outlined below:

* Hastings will no longer accept nor honor customer deposits for future movie purchases. Instead, existing deposits may be applied towards additional purchases in the store.

* Game rentals will no longer be available.

* Gift cards will expire on July 13, 30 days from today’s announcement.

* Hastings’ buyback program has been suspended.

We apologize for any inconvenience this news may cause. We have addressed more Frequently Asked Questions below and will continue to keep you updated as we work to identify a buyer. Whether its toys for the kids, on-trend merchandise for teens, electronics, comics, supplies for adults’ favorite hobbies or the opportunity to sip coffee while reading a new book, Hastings seeks to be a place where our communities come together and where everyone belongs.

We sincerely appreciate your business and hope to have the opportunity to serve you for many years to come.

Sincerely,

Jim Litwak

President & COO
Hastings Entertainment Inc.

Frequently Asked Questions for Customers

1. What is Chapter 11?
Chapter 11 is the section of the U.S. Bankruptcy Code that allows a company to continue to conduct business as usual while completing a financial and/or operational reorganization. For Hastings and SPImages, it means that we will be able to operate as usual while we evaluate potential buyers.

2. Why is Hastings filing for Chapter 11 protection?
Hastings has been working diligently to overcome challenges to our business, including the increasing number of competitors as well as declining demand for physical media properties such as music, movies, books, games and rentals, which once drove the majority of our sales. We have made significant progress with our remerchandising strategy and with other initiatives aimed at increasing profitability; however, these challenges combined with the financial strain caused by the Movie Stop and SPImages acquisitions, weakened our balance sheet to a point where we do not have the necessary cash on hand to continue operating our businesses or refresh all of our stores on a timely basis without new sources of financing. A sale process, facilitated by Chapter 11, will help us determine how we can best maximize the value of our assets for the benefit of our stakeholders.

3. Why is SPImages filing for Chapter 11 protection?
We have reached a point where we do not have the necessary cash on hand to continue operating our business. A sale process, facilitated by Chapter 11, will help us determine how we can best maximize the value of our assets for the benefit of our stakeholders.

4. How long is the sale process expected to take?
Hastings and SPImages expect to complete their respective sale processes within 30 days.

5. Will Hastings or SPImages go out of business?
The Chapter 11 process includes protections that will allow us to operate our business as usual while we evaluate potential buyers. We are hopeful that a buyer interested in our long-term potential will come forward with an offer that unlocks the full, future value of our assets for the benefit of all of our stakeholders.

6. How does this impact Hastings’ plan to continue remerchandising its stores?
Hastings has refreshed 20 of its entertainment superstores. We are hopeful that a buyer interested in continuing our remerchandising strategy will see the benefit of the related increases in sales and profitability and present an offer for the business.

7. Will my local Hastings store remain open?
Yes. All Hastings stores are opening as usual today. You should expect to find the same superior selection of multimedia and entertainment products with the same friendly and knowledgeable service.

8. Will the Passport program continue?
Yes. We fully expect to continue our Passport program with all of your accumulated benefits intact.

9. Will my store credit/gift card retain its full value?
Pending approval of the Bankruptcy Court, gift cards that were purchased before the Chapter 11 filing will retain their value for 30 days, or until July 13.

10. I recently placed a deposit for a movie that has not yet been released. Will that deposit be honored?
The movie deposit program has been suspended, but pending approval of the Bankruptcy Court, you may apply that deposit to other purchases in the store.

11. Is Hastings still offering customer buy-backs of books/music/movies/video games/electronics?
The buy-back program has been suspended.

12. Will my SPImages orders be delivered on time?
We are working closely with our suppliers to ensure all orders are delivered on schedule with the same high levels of quality and customer service.

13. Have you spoken with your suppliers? Do you expect any changes in your inventory as a result of the filing?
We are speaking with our suppliers throughout the day today and have every reason to expect they will continue to work with us based on the protections offered by the U.S. Bankruptcy Code and the additional financing we have secured.

14. Should I expect changes in pricing or promotions?
All of our pricing decisions will be made in the normal course of business, consistent with our past practices. This includes the decision to launch exciting new promotions on an ongoing basis.

15. Are you still accepting returns?
Yes. We are still accepting returns under the terms of our normal policies.