Turning a profit by closing up shop
Like many people, Andy Gumaer is sad when a beloved store goes out of business but happy at the thought of the everything-must-go sale.
Gumaer, though, is happier than most.
As president and co-founder of Great American Group, Gumaer buys bankrupt and ailing companies and then sells their assets, or he helps businesses unload operations that aren’t performing well. He has helped put to sleep stores owned by chains such as Kmart, Montgomery Ward and more recently Tower Records, making Woodland Hills-based Great American one of the nation’s top liquidators.
His company is one that customers hate to love: It ushers in the final days of a favorite merchant but generates some pretty good deals in the process.
With a black BMW convertible, a constantly buzzing BlackBerry and a preference for jeans, Gumaer, 46, doesn’t fit the image of the liquidation business, with its gaudy store signs and almost-threatening promises that the end is near.
“Historically, there’s this negative connotation with liquidators,” Gumaer said, sipping a can of Red Bull at 10 in the morning. “But we’re just part of the food chain -- someone has to do it.”
Gumaer needs the instincts of a vulture to be first to seize on folding companies and beat out other liquidators, which are always hovering. He looks a little predatory too, with bright eyes, straight white teeth and a shock of gray hair.
He didn’t set out to be a liquidator. A native of Fairbanks, Alaska, Gumaer came to Los Angeles with acting ambitions.
That didn’t work out, and he turned to investment banking before trying the liquidation business. He founded Great American in 1974 with Gary Mintz, who is the company’s chairman. Gumaer still doesn’t much like the term “liquidator,” instead telling people that he “buys and sells virtually everything.”
But in his chosen profession, the father of three has found a cause. Gumaer insists that liquidators help companies.
Great American, for instance, is working with Jo-Ann Stores Inc. to close dozens of poor performers each year among its hundreds of fabric and craft stores. The profit from those sales help the company survive as it opens larger stores.
When Great American pulls off successful inventory sales for failed companies, creditors get more of their money back.
Then there are companies such as Aron’s Records, a Hollywood music store that went out of business in April. Owner Jesse Klempner blamed rising costs and the increasing popularity of music piracy and downloading for killing the 40-year-old operation.
“It’s like a funeral director -- you don’t want to see him, but you need him,” Klempner said of liquidators.
Klempner initially tried to sell his merchandise through a 25%-off sale, but it drew few customers. With Great American presiding over the liquidation, things started selling. All that’s left now are a few security cameras, a tape dispenser and a few vacuum cleaners.
Though some customers may blame liquidators for the demise of their favorite stores, it’s not a fair assessment, Gumaer said.
“The company typically gets into trouble because of poor management or economic factors,” he said. “We’re a necessary part of the process.”
It’s a lucrative role. Gumaer figures that Great American sells $2 billion in assets a year. He estimates that the liquidation market nationwide totals $5 billion to $10 billion, depending on how many stores go out of business during the year.
The liquidation game is fiercely competitive, said Daniel Kane, a principal with Nassi Group, a Westlake Village-based liquidation company.
But with only a handful of players able to handle big, nationwide contracts, companies sometimes work together if a large amount of inventory is involved. And the following week they might find themselves sparring in court while competing for a different acquisition.
Great American is constantly on the prowl for industries and firms that may be liquidated soon and has to move quickly once the deals are identified.
Jay Smouse, 61, is one of the 450 Great American representatives deployed -- sometimes in the middle of the night -- to handle store closings.
“The phone rings, and you get your gear and go,” said Smouse, who is overseeing the closing of the Tower Records store in Sherman Oaks. He deals with some of the less pleasant parts of liquidation, such as supervising a staff whose jobs will no longer exist once all the merchandise is gone and dealing with customers angry about store closings.
The company learned from experience that some faltering businesses were worth buying and some were not. A recent endeavor with a shoe store, for instance, resulted in $1 million of losses after Great American found that the store had only very large and very small sizes left.
The company’s success depends on knowing what will sell. Great American has a division that appraises companies’ assets for lenders, as well as divisions that buy and sell hospital supplies, furniture, industrial equipment and model homes. Gumaer and Chief Executive Harvey Yellin oversee analysts and consultants who watch for business trends that will help or hurt different industries.
“Unfortunately, with globalization, there has to be some consolidation and closure. Our business is to see the opportunities,” said Mark Weitz, the head of Great American’s wholesale and industrial services division. Weitz has bought and sold slices of a pizza factory, manufacturing parts from hundreds of industries and giant drills that can bore through rock.
The decision to buy the assets of a failing company is a tough one. In the Tower Records sale, Great American representatives hunkered down for the 29-hour auction, debating whether to keep upping the bid. Gumaer still doesn’t know whether the $134.3-million purchase will be profitable.
Even after Great American wins a bid to sell a company’s assets, profit isn’t guaranteed. The trick is to lure customers to stores and make them feel pressured to buy.
“The liquidation business is a combination of an art and a science,” said Doug Curtis, a consultant who has worked with several big liquidators. The art is figuring out how to get rid of merchandise that doesn’t sell well, he said, and the science is determining how to keep popular items in stock so that customers will keep coming back.
The typical strategy includes now-or-never marketing language to get shoppers to buy today, coupled with discounts that increase during the sale to make unsold merchandise more attractive.
The quality of the inventory is important. Gumaer often browses the aisles of a failing store days before an auction to get a feel for the merchandise, trying to determine whether the store sells junk and, if so, whether others will buy it.
“No one runs out and buys blinds from a liquidation sale,” Gumaer said. “But things like toilet paper and toothpaste -- they’ll buy it.”
Liquidation companies capitalize on nostalgia, making closings an event. Starting Nov. 17, Great American will sell the assets of the Stardust hotel and casino in Las Vegas, holding a five-day gala auction that will bring back famous performers and guests. Owner Boyd Gaming Corp. plans to build a resort on the site.
Even before the casino closed Wednesday, Great American representatives were starting to tally its contents.
“We have to count everything -- tell me, does that chair look red or orange?” one representative said over the dinging of slot machines as gamblers smoked cigarettes in chairs that the company would soon try to sell.
But for all the wistful reminiscence, most people can’t resist a sale, Gumaer contends. Even when the company purchases an inventory of things that seem frivolous -- fake waterfalls, covered wagons -- when the prices are rolled back, people buy.
“Everybody loves a deal,” Gumaer said.
This simple nugget of information has helped Great American grow as retail stores across the country have folded. No matter how loyal a shopper may be to a store, it’s the discounts that matter in the end.
“I hope this isn’t going to happen to other music stores,” said music fan Itzhak Yaron, who was browsing the aisles of the Tower Records in Sherman Oaks recently. But Yaron, a financial planner, said it wouldn’t be the end of the world either.
“When the sales come,” he said, “I’ll buy the whole store.”
