Art Van Furniture, the metro Detroit-based company and the Midwest's top furniture and mattress retailer, announced Thursday it is shutting down and will begin liquidation sales at all of its company-owned stores.

The shocking announcement comes just three years after the company's sale by the Van Elslander family to a private-equity firm.

Boston-based private-equity firm Thomas H. Lee Partners bought a majority stake in Art Van Furniture in early 2017, about a year before the death of company founder Archie Van Elslander at age 87.

Art Van is expected to declare bankruptcy early next week. The filing would be a Chapter 11 reorganization, yet could potentially result in the permanent closure and liquidation of all Art Van Furniture stores — unless one or more buyers step forward to rescue the retailer.

"Despite our best efforts to remain open, the company's brands and operating performance have been hit hard by a challenging retail environment," Diane Charles, Art Van Furniture spokeswoman, said in a statement.

The liquidation sales will begin Friday at all Art Van Furniture, Art Van PureSleep and Scott Shuptrine Interiors in Michigan, Illinois, Ohio, Indiana and Missouri, as well as select Levin & Wolf stores in Maryland and Virginia. The Art Van stores are to close in 60 days.

Art Van has about 190 stores and about 3,100 employees. Twenty of the stores are franchise locations, situated in the company's "outmarkets" including the Upper Peninsula, Alpena, Mount Pleasant and Owosso in Michigan and in Indiana.

The Art Van liquidation and anticipated bankruptcy — nearly unthinkable a few years ago — marks the latest collapse of a popular and once-healthy retail brand in the wake of an acquisition by a private-equity firm. Payless ShoeSource, children's clothing store Gymboree and a well-liked New York grocery chain called Fairway Market met similar fates in recent years.

Private-equity firms use debt to acquire companies, and the debt is then owed by the company. The debt loads can leave companies with little room to maneuver if business conditions deteriorate. And any problems that arise can be exacerbated by the fees that private-equity firms ordinarily charge companies in their portfolios.

A source familiar with Art Van's finances says the company has struggled amid changes in the furniture and mattress retail business, especially the growth of online retail and decline in foot traffic at traditional brick-and-mortar stores. Gross sales have been on a downward trend, said the source, who wasn't authorized to speak on the record.

The company also may have over-expanded in recent years. Additionally, the Trump administration's tariffs on Chinese furniture imports has had a negative impact on Art Van, according to the source.

The 2017 sale price of the company was never disclosed, but was said to be over $550 million. The company at the time had more than 100 stores.

The size of the company's debt load from that deal also isn't known, and may not emerge until the bankruptcy filing.

A Thomas H. Lee Partners spokesperson said that investors in the deal, including the private-equity firm, "will lose 100% of their principal investment in the company and never received any dividends or returns of capital from their investments.”

Trade publication Furniture Today recently reported that Art Van's private-equity buyer led the company into sale-lease back transactions for locations Art Van had owned. That move burdened the retailer with new rent obligations at the same time as its business troubles deepened, the publication reported.

“Art Van is no different than any other brick-and-mortar retailer that has been impacted by the retail apocalypse," said Alex Calderone, a financial adviser and turnaround consultant with Birmingham-based Calderone Advisory Group.

"The private equity playbook, which almost always results in aggressive use of leverage, which increases the risk of failure exponentially, has not worked out for other retailers in the past and didn’t serve Art Van well either," Calderone said. "When an investment thesis doesn’t pan out, equity sponsors tend to cut their losses quickly."

Art Van's buyer, Thomas H. Lee Partners, had experience in consumer goods though companies such as Snapple, Dunkin' Donuts and MoneyGram, although Art Van was its only portfolio company retailing furniture and mattresses.

Later in 2017, under its new ownership, Art Van went on to buy two Pennsylvania-based furniture companies, Levin Furniture and Wolf Furniture, with 35 and 18 locations, respectively. Terms of those sales weren't disclosed.

Gary Van Elslander, one of the founder's sons and a company board member, said at the time of the sale that under its new ownership, Art Van had expansion plans for several Midwest markets, including Chicago, Indianapolis, Columbus, Cincinnati, Cleveland and Pittsburgh.

The Chicago expansion proved unwise, according to an Art Van insider, and those market locations began to cannibalize each other and lose money.

Art Van started encountering cash-flow problems in January when creditors and suppliers became concerned about the business' trajectory and tightened credit. Some suppliers later stopped making deliveries.

Crain's Detroit reported in February that the Van Elslander family was considering a bid to buy back the retailer if it fell into bankruptcy. A representative for the Van Elslander family office was not immediately available for comment Thursday.

A store clerk with Gardner-White Furniture, a family-owned company based in Auburn Hills, said they are already receiving numerous job inquiries from Art Van workers.

East Detroit roots

Started in 1959 as a single store in East Detroit (now Eastpointe) by Archie Van Elslander, Art Van Furniture thrived for years in Michigan as a midprice retailer that was especially popular with first-time home buyers.

The company opened headquarters in Warren in the early 1970s and outlasted many regional competitors, including Wickes Furniture and the higher-end Scott Shuptrine Furniture, which Art Van bought in the late 1980s. After closing down the Shuptrine stores by the early 2000s, the company later revived the brand as Scott Shuptrine Interiors.

Parade still on

Art Van Furniture has been a longtime sponsor of Detroit's Thanksgiving Day Parade. Art Van Elslander saved the parade from being canceled 30 years ago by writing a $200,000 check.

The retailer has two years left in its lead sponsorship contract for the parade, and if it can't fill that role, the parade still has the financial resources to go forward this year, said Tony Michaels, president and CEO of the Parade Company, which puts on America's Thanksgiving Parade.

He declined to give the size of Art Van's yearly contributions to the parade.

"We are on very solid ground and the parade will be there Thanksgiving Day with bells and whistles," he said.

Art Van has experienced executive turnover since the 2017 sale. CEO Kim Yost retired in early 2018, soon after the elder Van Elslander's death. His replacement, Ron Boire, a past chief executive for Barnes & Noble, left the company last August.

Current CEO Gary Fazio, a former Mattress Firm chief executive, came out of retirement in September to take the job.

Fouts is furious

Warren Mayor Jim Fouts issued a furious statement Thursday afternoon in response to the closure announcement.

He said he will reach out to Gov. Gretchen Whitmer to see what options there are to force Art Van's private-equity firm owner "to honor their commitment to the workers and taxpayers." The City of Warren gets more than $2.2 million a year in tax payments from the retailer, Fouts said in the statement.

"Art Van would likely be turning over in his grave due to this outrageous chain of events," Fouts wrote. "There has to be a national or state law that would prohibit investment companies from buying off and selling all assets at the expense of the workers and the community it is in."

Early calamity avoided

Before it grew to dominate Michigan's furniture market, Art Van Furniture narrowly avoided an earlier calamity in the 1960s.

In a 2009 Free Press interview, the elder Van Elslander recalled how his furniture company had grown from one to seven stores by 1964 but was on the verge of collapse because of over-expansion.

"We had a warehouse full of furniture but no cash," he recalled.

Art Van Elslander dug himself out of that trouble by staging an eight-day, heavily promoted Sunday-to-Sunday emergency clearance sale at the old Michigan State Fairgrounds in Detroit.

"We were open and selling every day from early morning until 10 p.m., then we'd run the trucks all night, refilling the floor with furniture from the warehouse," he said.

The Hail Mary worked.

"That sale saved the business," he said.

The closure announcement Thursday said that Levin & Wolf Furniture in Ohio and Pennsylvania will be sold to Robert Levin, pending court approval. Eight Wolf Furniture stores in Maryland and Virginia will also be liquidated.

ContactJC Reindl: 313-222-6631 or jcreindl@freepress.com. Follow him on Twitter @jcreindl. Read more on business and sign up for our business newsletter.