Dive Brief:
- A U.S. Bankruptcy Court ruled EZ Worldwide Express, newly emerged from Chapter 11, is now free to enact its debt-repayment plan, The Wall Street Journal reported Wednesday.
- EZ Worldwide had previously served as Forever 21's main shipping source to 171 stores, eventually retaining just 34 once the relationship became unprofitable and the shipper filed for Chapter 11 bankruptcy protection.
- EZ will now also be working with Disney, H&M and Amazon, which will provide enough profit for its accumulated debt to be repaid, with creditors receiving approximately $400,000 in four annual paymentsplus a portion of profits if the shipper earns more than $35 million per year.
Dive Insight:
Signing an exclusive contract may seem like a great way to guarantee income, but when that income shrinks precipitously, of what value is it?
During its tenure as Forever 21's exclusive shipper, EZ Worldwide Express saw its revenues drop from a high of $780,730 to a low of $352,483 within a single year. Unable to maintain itself, EZ reduced staff, warehouses, and transport trucks while bankruptcy loomed. Forever 21 weathered the storm, despite rumors and uncertainty; EZ Worldwide required legal intervention.
Lesson learned: Now that EZ has emerged from bankruptcy protection, it not longer relies solely on a single vendor. It's obvious from the fallout that EZ placed itself under significant risk by putting all its eggs in one basket.
That said, good contracting would have included a safety clause that place a certain volume responsibility on Forever 21 as a supplier. Entering bankruptcy in order to break a contract is hardly beneficial. The old relationship must not have been bad, though, as the two companies were able to retain something of their previous contract: EZ's plan includes shipments to 34 of Forever 21's locations.
