DESCRIPTION OF BUSINESS

12 Months Ended

Dec. 31, 2021

DESCRIPTION OF BUSINESS [Abstract]

DESCRIPTION OF BUSINESS

1.  DESCRIPTION OF BUSINESS

Tandy Leather Factory, Inc. (“TLFA,” “we,” “our,” “us,” the” Company,” “Tandy,” or “Tandy Leather” mean Tandy Leather Factory, Inc., together with its subsidiaries) is one of the world’s largest specialty retailers of leather and leathercraft-related items. Founded in 1919 in Fort Worth, Texas, the Company introduced leathercrafting to millions of American and later Canadian and other international customers and has built a track record as the trusted source of quality leather, tools, hardware, supplies, kits and teaching materials for leatherworkers everywhere.  Today, our mission remains to build on our legacy of inspiring the timeless art and trade of leatherworking.

What differentiates Tandy from the competition is our high brand awareness and strong brand equity and loyalty, our network of retail stores that provides convenience, a high-touch customer service experience, and a hub for the local leathercrafting community, and our 100-year heritage.  We believe that this combination of qualities is unique to Tandy and gives the brand competitive advantages that are difficult for others to replicate.

We sell our products primarily through company-owned stores and through orders generated from our four websites: tandyleather.com, tandyleather.ca, tandyleather.eu and tandyleather.com.au. We also manufacture leather lace, cut leather pieces and most of the do-it-yourself kits that are sold in our stores and on our websites.  We also offer production services to our business customers such as cutting (“clicking”), splitting, and some assembly.  We maintain our principal offices at 1900 Southeast Loop 820, Fort Worth, Texas 76140.

The Company currently operates a total of 106 retail stores. There are 95 stores in the United States (“U.S.”), ten stores in Canada and one store in Spain.

The Company’s common shares currently trade on the OTC Pink Market operated by OTC Markets Group under the symbol “TLFA.”

We operate as a single segment and report on a consolidated basis.

COVID-19

The onset of the COVID-19 pandemic in March 2020 temporarily shifted our strategic focus to company survival and cash preservation.  We began closing stores on March 18, 2020, and by April 2, 2020, we temporarily closed all stores to the public.  While we pivoted to serve customers only online, the Company experienced significant decreases in demand for its products in the second and third quarters of 2020, negatively impacting net sales.

In response, we took immediate action to mitigate the impact of temporary store closures on our cash flows by: (i) furloughing 406 Tandy employees, comprising two-thirds of the Tandy work force, (ii) temporarily cutting corporate salaries, with deeper cuts for the Executive Leadership Team, (iii) negotiating abatements, deferrals and other favorable lease terms with landlords, and (iv) negotiating longer payment terms with our key product vendors.

Due to our size, we were not eligible for the Paycheck Protection Program administered through the Small Business Administration.  Also, due to our not being current on financial filings with the SEC, we were not able to obtain loans under the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act.  However, under the CARES Act we were eligible to participate in the payroll tax deferral program, and we deferred $0.6 million in payroll tax with $0.3 million paid on December 31, 2021, and the remaining $0.3 million to be paid by December 31, 2022.  During the second quarter of 2020, the Company borrowed $0.4 million through the Spanish government’s Institute of Official Credit Guarantee for Small and Medium-sized Enterprises, a COVID-19 relief program.  The term of the agreement is for five years and the interest rate is fixed at 1.5%.  Based on the terms of the loan agreement, we make interest-only payments for the first two years and monthly principal and interest payments for the remainder of the term of the agreement.  In Canada, we participated in the Canada Emergency Commercial Rent Assistance (“CECRA”) program for rent relief, receiving total rent abatements under the program of $0.05 million.

Nine stores were permanently closed during 2020 as leases expired or early terminations were negotiated, including at locations where we believe we can retain a majority of customers through geographically proximate stores and/or our enhanced website platform.  After these permanent closures, Tandy operates 106 stores, including ten in Canada and one in Spain.

During the third quarter of 2020, all of Tandy’s stores reopened to the public.  While customer response to our store reopening has been good, since then, various spikes in local infection rates and the “wave” created by the Delta variant of COVID-19 in the summer of 2021 have forced us to sporadically move stores to short-term “curbside only” operations or closures due to local conditions or staffing issues.  We expect that at least some further infections and temporary store shutdowns will continue for the foreseeable future.

While we previously fulfilled our web orders out of our retail stores, during the second quarter of 2020, we built a centralized web fulfillment capability in our Fort Worth distribution center and have been and expect to continue to fulfill web orders primarily through Fort Worth going forward.  Both our e-commerce business and stores have seen strong sales performance, but the future remains uncertain, and more store closures and/or other ongoing effects of the pandemic on the economy or employment market could cause a material negative impact on future sales.

As part of the Company’s accounting policy for long-lived asset impairments, we believe the COVID-19 impact on the Company’s results of operations, cash flows and financial position and the ongoing uncertainty the virus has created around future operating results represented a triggering event during the first quarter of 2020 and continued throughout 2020.  For fiscal year 2020, the Company recorded impairment expense of $1.1 million, primarily related to property and equipment and operating lease assets for certain stores that underperformed to a level where the cash flows they generate will not be sufficient to cover their respective asset carry values.