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11/2/2016 7:08:00 PM
Merrillville-based DirectBuy files bankruptcy to get out from $200 million in debt

Joseph S. Pete, Times of Northwest Indiana

DirectBuy, one of the few national brands to emerge from Northwest Indiana, has filed for bankruptcy and wants to sell itself to lenders.

The Merrilllville-based buying club, which asserts it offers members straight-from-the-manufacturer prices at showrooms and online, said it has reached an agreement to be sold to lenders Bayside Capital and PennantPark Investment Corp. DirectBuy once had a million members nationwide, and more than 160 showrooms in the United States and Canada, but has been closing its franchised physical locations and working to reinvent itself as an online retailer in the style of Amazon.

Highland resident Jim Gagan founded the membership-based home improvement and home furnishings retailer in 1971, and sold it to private equity firm Trivest Partners in 2007. It’s faced legal action for its high-pressure sales practices, but has since changed its approach to marketing and now charges $39.95 a month for membership instead of the $4,000 to $6,000 it used to charge for three-year memberships.

Now the buying club is down to 200,000 members, has shifted focus to online commerce and is looking at closing all its remaining brick-and-mortar locations.

DirectBuy has about $200 million in debt, but is restructuring to be a smaller company that would bring in about $3 million to $5 million in profit a year.

The company has filed for Chapter 11 Bankruptcy in Delaware, and plans to continue to operate as it reorganizes its debt. Another buyer could come in and purchase it out of bankruptcy, if it made a better offer.

“We are pleased to have reached this agreement, which will enable us to fully capitalize on our innovative business model, provide significant benefits to our stakeholders and maximize the value of our company,” DirectBuy Chief Executive Officer Mike Bornhorst said.

“Over the past three years, we have taken meaningful steps to strengthen our service platform and improve DirectBuy’s unique value proposition,” he went on to say. “In addition to operational initiatives, we have transitioned our business model to contemporize, customize and simplify the shopping experience for our members as well as to drive value for all our business partners. Today we have announced the next step in our transition, which will enable us to focus entirely on our bright future.”

Nearly 100 showrooms have closed over the last few years as DirectBuy has consolidated operations in Merrillville while rolling out an app, shopping by chat, and other digital initiatives.

DirectBuy employs 400 people in Merrillville. It will continue to pay them salaries and benefits as it goes through bankruptcy proceedings, and is looking to fill about 35 positions at its headquarters and call center. The company says it will continue to pay suppliers and vendors, and says it has a merchandise trust with enough cash to ensure members receive any goods they have already purchased.

The company wants to stress it will still be around.

“The agreement will alleviate past debt obligations created during DirectBuy’s past purchase transactions, as well as improve DirectBuy’s cash flow and long-term profitability,” Bornhorst said. “With the support of our lenders, we look forward to elevating the company to its next phase of growth and continuing to provide our valued members with the savings, selection and services that they have come to know and expect.”

Copyright 2019,, Munster, IN

Editor, John C. DePrez Jr.; Executive Editor, Carol Rogers; Publishers: IBRC and IAR

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