15 Mar, 2019
2018−2019 Some US Retail Apocalypse And Why They Failed
In the last week, denim brand Diesel USA filed for bankruptcy, citing mounting losses, a drop in sales, and cyber fraud, among other issues.
In February 2019, Payless filed for its second bankruptcy in two years. The footwear retailer announced that it would be closing all 2,100 of its stores in the US, representing what might be the largest retail liquidation to date.
Meanwhile, Sears recently emerged from bankruptcy as chairman Edward Lampert received court approval to buy the struggling retail giant for $5.2B. But the company still faces a challenging retail landscape ahead and will operate fewer stores than before.
In this article we dig into recent bankruptcies and the reasons behind them. As we' ll see, Amazon is not the only reason that physical retail is troubled — mounting debt and retailers' own missteps and lack of adaptability are also to blame, among other factors.
Denim fashion brand Diesel filed for bankruptcy in March 2019, citing mounting losses at its 28 brick-and-mortar locations in the US. The company had also made what proved to be an ill-timed $90M capital investment, mostly in its stores, that did not bear the desired fruit. In addition, the fashion denim company claims that multiple incidents of theft and fraud led to a $1.2M loss over the last three years. The firm has not announced store closures, but it has outlined a plan for recovery that includes opening new stores and retrofitting some old ones to make their operation more cost-effective.
Popular women’s apparel retailer Charlotte Russe struggled for years as online shopping disrupted the retail sector. Eventually, it could not manage the debt it incurred and filed for bankruptcy in February 2019. At the time, Charlotte Russe secured a $50M debtor-in-possession financing commitment in the hopes of finding a buyer. But according to recent reports, the fashion retailer is going out of business and closing all of its stores nationwide. It’s online store has also shut down.
FullBeauty Brands entered and exited bankruptcy in record time. The company filed for Chapter 11 on February 3, 2019 and emerged with court approval for its reorganization plan in less than 24 hours. Having struggled with financial difficulties and increased competition, the New York City-based online retailer of plus-sized women’s clothing had carried a debt burden of $1.3B prior to bankruptcy. It was able to eliminate about $900M of debt by turning over company ownership to its creditors. FullBeauty Brands has since secured $35M in new financing.
After emerging from its first bankruptcy in late 2017, Payless filed for bankruptcy once more on February 18, 2019. Struggling with the challenging retail environment and significant debt from its first foray into Chapter 11 (while managing a massive footprint of about 3,400 stores in 40 countries), Payless announced it would be closing all 2,100 of its remaining stores in the US and Puerto Rico.
Facing steep competition from online retailers and shouldering a $144M debt load, Things Remembered filed for bankruptcy on February 6, 2019. Later in the month, the Cleveland-based gifts retailer won court approval to close a majority of its 400 stores as it planned to sell most of its business to Enesco, an Illinois-based company that specializes in gift ware, home decor, and accessories. The transaction completed in March 2019, and Things Remembered will continue to operate 176 sores under its brand.
Beauty Brands filed for bankruptcy in January 2019, entering into an asset purchase agreement with Hilco Merchant Resources for the sale of its operating assets. The Kansas City-based beauty and salon retailer is reported to have expanded its store footprint too rapidly, racking up unsustainable operating losses in the process. In February, however, a judge granted the founder approval to buy Beauty Brands for a minimum of $4.65M. While 25 stores will be closing, the remaining 33 are expected to remain open as the beauty retailer reorganizes.
Gymboree filed for its second bankruptcy in January 2019, announcing that it would close about 800 Gymboree and Crazy 8 stores in the US and Canada. Gymboree had closed and liquidated 300 stores and eliminated roughly $900M in debt following its first bankruptcy in June of 2017, but it continued to steadily lose market share after that point. Gymboree is now selling its flagship brand as well as the Crazy 8 brand to The Children’s Place for $76M. The children’s apparel retailer will also sell its Janie and Jack clothing line to Gap Inc for $35M.
Shopko filed for bankruptcy on January 16, 2019 after being hit with a lawsuit from pharmaceutical drug supplier McKesson Corporation alleging that it owed the firm $67M. The Wisconsin-based retailer secured $480M in financing from lenders so that it could continue normal business operations, then announced that it would close 250 more stores on top of the 38 locations it had previously declared it would shutter. A special committee is investigating dividend payments made by Shopko to some of its equity owners, including Sun Capital.
Struggling to keep up with online competitors and burdened with hundreds of millions of dollars in debt from a prior private-equity buyout, David’s Bridal filed for bankruptcy on November 19, 2018. The bridal apparel retailer secured financing to keep its website and more than 300 stores operating normally as it reorganized, promising that brides would still receive their wedding dresses on schedule. David’s Bridal emerged from bankruptcy in January 2019, yet still faces considerable challenges as the marriage rate continues to decline and millennials in particular delay their trips to the altar.
Retail giant Sears filed for Chapter 11 bankruptcy protection in October 2018, following years of financial struggles — in part due to a thriving online retail ecosystem. Despite reducing assets and selling real estate over the years, the company was unable to pay off $134M worth of debt. Sears Holdings, the parent company of Sears and Kmart, said it plans to keep profitable stores running. By the end of 2018, the company was looking to shutter at least 188 stores out of the nearly 700 that remained.
In February 2019, a New York court approved a $5.2B bid by Sears Chairman Edward Lampert to buy the company. Now that it has shed debt and pension obligations while closing unprofitable stores, the retailer faces many of the same challenges it once did — personalizing the customer experience and leveraging AI to improve operational efficiency, for example — but with fewer financial constraints holding it back. Sears will now operate 223 Sears and 202 Kmart stores, down from 687 stores in 2018 and 1,672 stores in 2016.
Gump’s, one of the oldest gifts, jewelry, and luxury home furnishing retailers in the United States, filed for bankruptcy on August 3, 2018. Like many other department stores, Gump’s has grappled with an extraordinarily challenging retail environment as it battled high operating costs and a heavy debt load. While the San Francisco-based retailer did enjoy some success launching e-commerce sales, it incurred net losses of $5M in 2016 and $5.7M in 2017. As it undergoes reorganization, Gump’s is actively searching for a buyer.
Brookstone, the mall chain retailer that sells a variety of products, filed for Chapter 11 bankruptcy in August 2018. The bankruptcy, the company’s second in four years, was a result of declining foot traffic in malls and mismanagement that impacted sales. Brookstone hired liquidators to help close about 100 stores across the country. In August of the same year, Brookstone sought Authentic Brands Group as a potential acquirer — the same brand that bought the Nine West, Bandolino, and Nautica brands.
SAMUELS JEWELERS INC.
Texas-based jewelry chain Samuels Jewelers Inc. filed for Chapter 11 bankruptcy in August 2018, mostly due to a drop in sales and profits from increasing online retail competition. The company was previously under Mehul Choksi, who has been under fire for alleged bank fraud along with his nephew Nirav Modi. Samuels is looking to sell, and plans to close more than 100 stores in the process. The company has already brought in Gordon Brothers Retail Partners and Hilco Merchant Resources to help sell off inventory and assets in order to pay off debt worth over $100M.
Massachusetts-based Rockport declared Chapter 11 bankruptcy in May 2018, citing declining traffic to physical stores and a rocky separation from its previous owner, Adidas unit Reebok, as reasons. At the time of the filing, the company said it would potentially shutter all of its standalone retail stores, including 27 across the United States. Rockport agreed to sell itself to private equity firm Charlesbank Capital Partners for $150M in July. But that sale was halted when Reebok and Adidas objected to the sale, claiming $54M was owed to the shoe brands. The deal, however, was finalized in August, with Rockport agreeing to pay Adidas $8M from the proceeds of its sale. The company has since announced it will enhance its focus on its global wholesale, independent, and e-commerce businesses.
NINE WEST HOLDINGS
Shoe retailer Nine West Holdings Inc. filed for bankruptcy in April 2018, with court documents showing the company owed more than $1B to as many as 50,000 creditors. In June 2018, the company sold off its namesake brand, along with its handbag brand Bandolino, for $340M. Although the company announced it would operate as usual through the bankruptcy, it asked investment bank Lazard Ltd to help explore a sale for its remaining assets, which include its jewelry and jeansware businesses, as well as its women’s clothing lines, Kasper and Anne Klein.
In October 2018, Nine West filed an amended bankruptcy plan to reduce its pre-bankruptcy debt obligations by more than $1B. In late February 2019, the footwear brand received court approval to proceed with its plan to restructure its debts.
he teen accessories retailer, well-known for its ear-piercing service, filed for bankruptcy protection in March 2018. Claire’s has been unable to make good on its debt obligations after a private equity firm took the company private as part of a $3.1B leveraged buyout in 2007. This represents the latest retailer to be brought down by a combination of private equity debt, and e-commerce competition. Claire’s is currently negotiating with its lenders to reduce its debt as it continues to operate its retail locations.
The American subsidiary of an Italian makeup retailer filed for Chapter 11 bankruptcy in January 2018. The company has made plans to restructure which includes the closure of nearly all of its remaining domestic stores. According to the company’s chief executive, Kiko USA suffered from extremely high operating costs and continually depressed profits in recent years. While Kiko had witnessed its online sales grow in 2017, it was not enough to protect its brick-and-mortar stores from the rise of e-commerce and overall decline in shopping mall foot traffic.
2018's first retail apocalypse victim, Texas-based fashion retailer A’gaci, filed for Chapter 11 bankruptcy protection in January 2018 due to poor financial performance, which stemmed from a badly planned physical retail expansion, hurricane damages, and other internal issues. Post-bankruptcy, the company seeks to decrease its physical footprint and focus on its more profitable storefronts.
11 Mar, 2019
The Cayman Islands recorded 31% of all offshore M&A transactions and 26% of total deal value in 2018, maintaining its spot as the top jurisdiction for offshore deal making last year....