Kelly-Moore Paints halts operations and is closing all of its stores

Kelly-Moore Paints store at 710 Auzerais Avenue in downtown San Jose.

Kelly-Moore Paints, founded in San Carlos in 1946, has abruptly halted operations and closed all of its stores after failing to secure a cash infusion to help it escape a financial quagmire brought on my asbestos claims.

The shutdown affects 61 Bay Area locations, including six in San Jose, five in San Francisco and three in Santa Rosa, according to the retailer’s website. Oakland, Concord, Fremont, Mountain View, San Mateo and Santa Clara each has two Kelly-Moore Paint stores.

Except for a distribution center in Union City, “all the company’s facilities will be permanently closed effective immediately, including Kelly-Moore’s manufacturing facility in Texas, and its retail stores,” the company said in a news release. The Union City complex is being kept open temporarily to help Kelly-Moore fulfill existing orders.

Kelly-Moore Paints, whose slogan is “The painter’s paint store,” said its finances have been eroded by three decades of asbestos claims. The company said it had “conducted an exhaustive process that included pursuing opportunities for new capital investment, a potential sale, merger or reorganization.”

Under long-gone prior ownership, Kelly-Moore had used asbestos in cement and texture products. The paint retailer discontinued asbestos in its products in 1981. Even so, the company’s finances eventually buckled beneath a mountain of claims.

“Largely due to the asbestos litigation overhang, it was impossible to attract any additional funding or interest to recapitalize, restructure, or reorganize the business,” the company stated.

The cash squeeze was so severe that it could not revamp its finances through a bankruptcy proceeding, the company said.

“Neither a bankruptcy reorganization nor an in-court liquidation is viable or advantageous given the company’s inability to fund its continued operations,” Kelly-Moore stated in the news release.

Kelly-Moore also claimed it had few assets that it could dangle in front of creditors as part of the give-and-take between a debtor and its creditors that frequently accompanies a bankruptcy proceeding.

“The company leases all its facilities and has no unencumbered hard assets that could be made available for distribution to creditors,” Kelly-Moore stated.

The abrupt collapse means scores of dark storefronts are about to appear on an already gloomy landscape for the commercial real estate market in the Bay Area.

But many locations could attract retailers, especially since the size of a typical Kelly-Moore store is about 7,000 to 8,000 square feet in size, in the view of David Taxin, a partner with Meacham Oppenheimer, a commercial real estate firm.

“There should be plenty of retailers out there for stores of this size,” Taxin said. “There are a lot of ways to re-purpose these buildings.”

One employee who contacted this news organization said many workers believed top-level management should have been more upfront and transparent with rank-and-file workers, and provided this news organization with a copy of a letter that Kelly-Moore’s chief executive officer Charles Gassenheimer sent to employees on Friday.

Gassenheimer told the workers that the company attempted wide-ranging and intensive efforts to find new investors or some group or individual with sufficient deep pockets to keep the paint retailer afloat, but the quest failed. “We have not been able to secure the additional funding needed to continue operations,” Gassenheimer wrote in the letter to Kelly-Moore workers.

Earlier in the month, Kelly-Moore furloughed 700 workers and halted manufacturing in what appeared to be a last-ditch effort to remain afloat. “We tried to set the business on a course to profitability, but we have now reached the end of the road,” Gassenheimer said.

In 2022, Flacks Group, a Miami-based investment firm whose managing director at the time was Gassenheimer, bought Kelly-Moore Paint Co. for an undisclosed amount. Flacks Group has no retailing experience and purchases companies in an array of industries that present the prospect of profits.

In addition to the displaced workers, professional painters will be jolted by the sudden demise of a familiar retailer.

“Kelly-Moore was the paint store for the painter,” Taxin said. “There will be a lot of painters out there scratching their heads, wondering what happened.”