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  The Active store in downtown San Diego

Active Ride Shop said today it will file a petition for bankruptcy protection this afternoon.

The Chapter 11 reorganization filing will allow the retailer to break the leases of underperforming stores, many which were opened in the past 24 months as the Mira Loma-based company embarked on a major expansion.

Active has closed eight stores during the past few weeks, bringing its current store count to 21. The stores that have closed are in San Diego (downtown, Las Americas and Chula Vista), Mission Viejo, Lake Elsinore, Westwood, Irvine (Alton Parkway), and Simi Valley. Three more stores are on “the bubble” and will stay open if the company is able to renegotiate leases with landlords, Active co-owner Shane Wallace told me in an interview.

Shane said many of the stores that closed did not have time to mature before the economic crisis hit and were “sucking cash from the company.” He also said Active opened some new stores too near to older stores and that cluster strategy did not work.

Other new stores, such as Santa Monica, are doing well. “We found we do great as a destination, not as a cluster,” he said.

Shane said that he hopes the bankruptcy filing, while painful, will allow the company, which is celebrating its 20th anniversary, to begin the healing process and return to being a strong company with 21 stores instead of 29.

“We look forward to creating a great Active that is an asset to all of its partners,” he said.

Shane and his father and partner, John Wallace, have met with 30 vendors in the past three weeks to explain the situation, Shane said. He said vendors have been very supportive and have said they will ship fresh goods to Active on a COD basis. Some have even said they will offer Active credit terms as soon as Active filed for bankruptcy, Shane said.

Vendors had stopped shipping to Active because of past due balances and because the chain was considered a credit risk. Shane said the company also didn’t accept any new goods in the last 30 days because it didn’t want to make the situation worse.

As a result, the stores that are still open are filled with private label goods with a limited selection of branded merchandise.

Shane said fresh goods from brands will be landing in stores during the next 90 days – more, he said, than the company has received all year.

“We expect to have a well-stocked Active for summer and for back to school,” he said.

One of the ways Active has freed up cash flow to pay for fresh goods is to reduce its corporate overhead and store personnel expenses by 30 percent, Shane said. Approximately 50 people now work at Active corporate offices.

As far as paying past due vendor balance, Shane said the company’s goal is to pay what it can but that it will be up to the bankruptcy court to decide what outstanding debts get paid.

The court will also decide whether Active stays in its state-of-the-art 100,000 square foot headquarters in Mira Loma, which the company moved into in 2008.

Before the recession kicked into full force, Active had been close to bringing in a financial partner. Shane said they still talk to potential investors all the time and he believes there are still several opportunities.

Shane wanted to say that he hopes the industry can work together through the challenging recession.

“I do think if we can get through this mess (the industry) will see better days ahead,” he said.

Here is the official press release:

Active Ride Shop to Reorganize Under Chapter 11

-Active Ride Shop Remains Fully Operational and Open for Business

Mira Loma, CA, March 23rd, 2009 – Active Ride Shop today announced that it has filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court in Riverside. The company is focusing on executing a comprehensive corporate restructuring plan without interruption to business operations.

Active Ride Shop recently announced that it was taking action to address the company’s financial challenges. Alongside the strategic counsel provided by Marc Winthrop, of Winthrop Couchot, one of Southern California’s leading bankruptcy law firms and Stephen Bell, of Phoenix Group Advisory Services, LLC, a professional financial and operational advisory firm, the company has determined that it would be in the best interest of its stakeholders to file for reorganization protection under Chapter 11.

Operating under the protection of Chapter 11 will provide the company’s vendors with assurances that they will be paid for merchandise the company receives post-filing so the company can be sufficiently stocked for the spring selling season. The restructuring plan will position Active Ride Shop with a stronger business foundation, an improved multi-channel distribution source for its vendors, and a more meaningful offering for its customers.

The company recognizes that, to achieve these objectives, there is a critical need to create a more efficient operation with a reduced cost structure. As previously announced, the company has closed 8 under-performing retail locations. This week, the company took action to realign its corporate support structure alongside the smaller store base, which will include 21 retail stores as well its e-commerce storefront. The store closings and corporate workforce reductions will result in combined workforce compensation and related costs in excess of 30%. Further, as part of its restructuring efforts, the company will continue to evaluate the productivity of all assets, analyze additional cost-cutting initiatives and research strategic alternatives to maximize the value of the business.

John Wallace, chief executive officer and founder of Active Ride Shop, said “The swift and dramatic downturn in the local economy had a major impact on our business in the 3rd and 4th quarters of 2008. In combination with the robust growth and expansion we experienced during the previous 24 months, this perfect storm of economic retraction left us with no other option.” He continued, “The preemptive cost cutting initiatives that we took throughout 2008 were not enough to protect our investments without filing for Chapter 11 reorganization protection.”

“We appreciate the support we have received from our vendors and suppliers during this downturn. With this support, we have every reason to believe that we will emerge from Chapter 11 with a stronger business and a more impactful market presence. Most importantly, Active Ride Shop will be restored to solid financial footing as a direct result of this support.”

“The recent work force reductions and downsizing activities have not been easy for the employees of Active Ride Shop which makes us even more appreciative of their dedication and loyalty. We are especially saddened at the loss of employment for many long term employees. The impact of these decisions is far reaching, and we deeply regret the effect this has on our employees and their families.”

“We move forward with this reorganization with the firm knowledge that the steps we are taking will bring lasting positive changes to our business and satisfaction and value to our customers” concluded Wallace.

About Active
Established in 1989, Active Ride Shop maintains its position among the top retailers and mail-order businesses in the action sports industry. Awarded Surf Industry (SIMA) Men’s Retailer of the Year Award (2008), #1 Specialty Retailer by the Future Trade, #36 on DNR’s “top 50 most influential menswear retailers”. Active has locations throughout Southern California and delivers catalogs to action sports enthusiasts nationwide. Active Ride Shop sponsors the most elite skateboarders and snowboarders in the world, and is proud of its offering of the finest brands and hottest trends in the industry. For more information about Active Ride Shop visit www.activerideshop.com