Mounting debt and the final-hour breakdown of a last-ditch investment deal pushed Banks Journal into bankruptcy proceedings that shuttered the 10-year-old surf brand in October.

News of the closure was abrupt and seemed unexpected. However, internally the company had struggled to turn profitable as debt mounted. The challenges that came with the pandemic sent the business over the edge.

“We were still dealing with some really difficult cash flow issues because of the lack of profit in a lot of the sales we were making. It really affected us because we still had the bills that we packed in through Covid,” said co-founder Rama McCabe. “And then having to get rid of that product at such a low margin, we were trying to dig ourselves out of that hole. But it was a hole that was too big to get out of.”

McCabe started the business with Motoo Noda, Masa Shibahara, and Tim Cochran as a contemporary surf label that drew influences from the founders’ experiences in Australia and Japan. The designs helped the label straddle distribution in both surf shops and boutique retailers. The business also expanded with a store in downtown Los Angeles and another at the Surfjack Hotel & Swim Club in Waikiki.

However, most of the years Banks was in business it operated just shy of an annual profit, and, beginning with the pandemic, sustained heavy losses that forced it to seek an outside investor willing to take on the debt.

It found one. A supplier that was also one of the company’s major debt holders stepped up.

“Unfortunately, last minute, pretty much the last day that we needed to sign the deal, they backed out and it was a huge shock to us because we didn’t really understand the reasoning,” McCabe said. “We then got forced into a position where we had to make some decisions really quickly.”

Banks Journal Liquidation

The company’s legal counsel suggested Chapter 7 as the only path forward. In a reorganization under Chapter 11, Banks Journal would have been required to show a monthly plan to the court indicating positive cash flow. The company no longer had the financial investment necessary to make good on such a plan.

“We didn’t feel comfortable putting forward a plan to the bankruptcy courts of a Chapter 11 that we couldn’t speak to,” McCabe said. “Unfortunately, the plans that we had drawn up just really didn’t feel like they were achievable and one of the main reasons for that was we didn’t have the new inventory to sell.”

The product the company did have in its warehouse had been aging for some time and would have had to have been sold at a large discount. The ownership decided that wouldn’t have made sense.

The investment deal fell through on a Monday, discussions were had with attorneys on best options for the business the following day, and emails went out to employees by Wednesday about the closure.

“It was really emotional after a 10-year process of working through the business and being able to work alongside some amazing employees,” McCabe said. “It was heartbreaking.”

Missed Opportunities

The team was also disappointed because Banks Journal was closing in on what would have been its largest revenue year to date in 2023 as the sales team opened new accounts and took advantage of an industry-wide increase in open-to-buys. Not only that, but Banks had designs that never made it to market because the business was unable to deliver product.

The company’s move to bring in former Reef President Jeff Moore as interim CEO in April was fruitful in teaching the founders various business lessons. However, McCabe said in retrospect, bringing on Moore at that point was too late for the state of the business.

“I think there were probably some things that myself and Moto should have explained a bit clearer so that [Moore] could move the business forward, but there were so many moving parts that we weren’t able to do that,” McCabe said. “But he did the absolute best job he could with the parameters he had.”

The challenges internally led to a shedding of staff over the past 12 months, with about eight members either being laid off or leaving to find a more stable work environment, according to McCabe.

Banks Journal counted about 20 full- and part-time employees across its stores, sales team, warehouse, and office staff at the time of its bankruptcy filing.

“I think if the business had come to an end because it was just the end of our lifecycle because the product wasn’t relevant, consumers didn’t want us, and retailers had no space for us, that would have been a bit easier to take on board,” McCabe said. “But we had good traction so to have the business collapse was pretty hard to take.”

Winding Down

Banks Journal will wind its way through the Chapter 7 process over the next four to five months. An exact timetable of when the liquidation will be completed is subject to the court and the appointed trustee.

While the U.S. business is completely shuttered, overseas is a different story.

The company’s European distributor, Pilot Fish, continues to operate the Banks Journal website in Europe and is also shipping e-commerce orders worldwide, with the exception of Japan. The distributor will continue to have Banks Journal product through summer 2024.

In Japan, Banks Journal’s parent and major shareholder, called Jamgle Jam Japan, operates the 11-store chain Port of Call. It will continue selling Banks Journal through those stores and other select retailers until summer 2024.

Jamgle Jam Japan also owns the Banks Journal Japanese trademark and could continue developing product past the summer time frame if it chooses.

Next Steps

The bankruptcy, while unfortunate, came with plenty of lessons for McCabe about what to do and what not to do. He said he’s working through some ideas for future projects and if he was to re-enter apparel, the earliest the market could see anything would be spring 2025. However, nothing is definite.

“I love the industry that we work within, and I love product,” McCabe said. “That’s been my whole career. The last 20 years of my life have been dedicated to the surf industry and developing product, so it’s definitely what I’m going to stay within because it’s what I’m most passionate about.”

When Banks Journal launched, sustainability wasn’t as much of a factor in fashion as it is today and, in surf, it was hard for small brands to carve out a piece of the market for themselves. Should McCabe make a return in apparel, he’ll come back to a market that’s already in the process of evolving in response to disruption not only in consumer trends but what brands will dominate retailer shelves in the future.

“There’s a lot more room for smaller brands to take up open-to-buy from some of the bigger brands that are choosing to go down a different route, including the Boardriders group,” McCabe said. “When Banks Journal started, it was a competitive landscape to break into key retailers because they were doing so well with these big brands. These days it’s extremely exciting to see brands like Katin, Rhythm, and Roark doing fantastic in the market and absorbing some of that open-to-buy. It’s deserving and I don’t think it’s just driven from retailers not wanting some of the older brands. It’s driven by these brands providing fantastic products and the consumer wanting a point of differentiation.”

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