David’s Bridal exited Chapter 11 bankruptcy proceedings in January, just two months after it filed, but that quick tour has a few retail consultants wondering whether enough was done while it was still under court supervision given the shift in consumer shopping preferences.
At the time the retailer filed its bankruptcy petition in November, it blamed debt levered on the balance sheet in 2012 from a $1.05 billion sale to Clayton Dubilier & Rice by Leonard Green & Partners, both private equity firms. The company negotiated with lenders and equity investors and received enough support to enable it to do a pre-packaged filing, hence the short stay in bankruptcy court.
And to David’s Bridal’s credit, the company was able to emerge without the need to shutter any stores, and it was also able to fill all orders from its customers without any interruption—but that’s where the quick exit could end up being a potential problem down the road.
The right way to restructure
David Berliner, restructuring and turnaround services partner at BDO noted that getting a restructuring and refinancing done now before a recession hits, is a smart thing to do. That’s because lenders might up the ante in a tighter credit market as they try to lesson risks on their balance sheets. Completing a refinance now gives companies a cushion to help them withstand the downturn, Berliner explained.
That said, Berliner, who tracks retail bankruptcies, expects more companies to file this year. He’s also keeping close tabs on retailers that have recently exited bankruptcy proceedings, like Sears Holdings Corp. and David’s Bridal. That focus has been necessitated by the recent liquidations of Payless ShoeSource and Gymboree. Both companies filed in 2017, exited in 2018 and filed for a second tour of bankruptcy proceedings earlier this year, only to end up shutting down the business and going into liquidation. Payless and Gymboree followed the path of Wet Seal and Radio Shack before them, or in bankruptcy parlance, the dreaded so-called Chapter 22.
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“You see Chapter 22s because that’s a sign the original restructuring didn’t solve the retailer’s problems. They rushed through the bankruptcy too soon and didn’t fix the underlying problem,” Berliner explained. “For many, they shifted the balance sheet in a debt for equity swap, but hadn’t cleaned up its operations. For many, they probably still have a strategy and a store base that’s not optimal.”
Berliner was quick to note, however, that rushing through bankruptcy isn’t necessarily the fault of bankrupt debtors. The dynamic of what’s been a trend, he said, is that secured creditors and trade vendors have gotten burned in past proceedings and now don’t want extended stays in bankruptcy court because of high legal costs.
“Everyone is rushing the process to save money. An easy thing to do is to fix the balance sheet a little bit,” the consultant said. Judges are also mindful that the retail industry employs a lot of people, so they try to preserve those jobs and give even the “weaker ones a chance to fight another day.” That translates to reorganization plans getting the nod, provided they are viable and don’t appear to lead to a reorganization in the near term, Berliner said.
Breaking the bankruptcy code
Another factor is the Bankruptcy Code itself, which outlines the federal law on a court-supervised restructuring, and has seen amendments that now leave little room for companies to make certain decisions. One key area for retailers is the time to decide which stores to keep in operation and which ones to close. Today, there’s a time cap for making the decision, whereas before, the time to decide was unlimited.
In the case of David’s Bridal, the company said during its bankruptcy that it didn’t have a need to close stores because they were profitable. However, there’s still some leftover debt on its balance sheet, and the retailer will have to ensure it can keep up with changing consumer shopping trends to keep cash flow coming in to help pay down the remaining debt.
“After it went from Leonard Green to Clayton Dubilier & Rice, the business drifted a bit because of the whole changing landscape in retail where the the power has gone to the consumer,” one retail consultant observed. “That consumer is now incredibly well informed, and the internet provides interesting options for people. That has changed the way retailers have to do business–they have to figure out how to make its store base viable and attractive to customers.”
Some current consumer trends could make that a tough hurdle for the largest bridal retailer.
Millennials and marriages
In a blog post last July, The Gottman Institute noted that millennials are marrying at an older age, presuming they choose to marry at all. The post cited an Urban Institute report predicting a significant number in this cohort will remain unmarried past the age of 40.
Ranu Coleman, chief marketing officer at direct-to-consumer bridal brand Azazie, valued the wedding service business at $50.6 billion, with apparel accounting for roughly 9.1 percent of that market, or $4.6 billion. The brand started with bridesmaid dresses in 2014 before launching bridal dresses and gowns. According to Coleman, the company has seen much of its growth from both loyal consumers and word-of-mouth. That’s due to social media mentions on “big bridal forums, The Knot, WeddingWire, where they’re talking attire and see Azazie mentioned,” Coleman said. And because many of its dresses can work for a cocktail or holiday party, that helps drive repeat business.
Coleman also noted that there’s an industry-wide push toward customization and personalization. Azazie offers virtual showrooms, and anyone using its app can order samples and buy gowns. Mobile is now 45 percent of the business, compared with just 15 percent a few years ago, Coleman explained.
As for the shift to online versus a brick-and-mortar bridal retailer, Coleman said, “I think one of the reason we have seen such a shift in bridal retail is because the millennial customer is not necessarily interested in buying off-the-rack. A couple that’s older when they get married and are more established [want a gown] that reflects who they are, and someone in their 30s who is more casual is not interested in a large Princess ballgown that was popular five or 10 years ago. They also don’t want the pressure of a salesperson telling them what to buy. They want to be with family and buy on their own terms, as well as do FaceTime with their friends.”
Nicole Staple, co-founder and chief executive officer of Brideside, said she’s seen some consumer preferences that have impacted the traditional bridal industry. Brideside is a digitally native bridal retailer that opened a Manhattan brick-and-mortar flagship in November in the Flatiron neighborhood. The bigger retail operations have been challenged on the innovation front, whether in-store or digitally, Staple said.
The casualization of weddings have had a big impact on the industry, Staple said, with “brides now giving bridesmaids more flexibility in choice. They don’t have to buy one specific dress. Eighty percent wear a similar color, but different style….They are also working more with stylists so they can wear the dress after the wedding as a guest later on.” She also noted how her firm’s stylists have become “conversation machines,” using technology tools to connect with brides so digital leads turn into paying customers.” Brideside also works with wedding planners to get the word out about the brand.
What this all means for David’s Bridal
Those industry changes are a selection of some of the operating and merchandising details that the team at David’s Bridal will need to consider as it thinks about its place in the bridal sector.
So far, the bridal retailer seems to be making the right strategic decisions.
Following its exit, the company named Tom Lynch as the new chief executive officer. It also hired Curt Kroll as its new chief financial officer. On Tuesday, marking one of the early initiatives of its new management team, David’s Bridal said it was consolidating its design and product development operations to provide faster delivery of trend-right product to its customers. Under the new arrangements, all design functions will be housed with Fillberg LTD, its joint-venture partner in China. A team in Hong Kong will focus on speed-to-market, contemporary product designs and competitive pricing. A separate design team for White by Vera Wang, an exclusive brand offering that’s owned by the retailer, will remain based in Manhattan to ensure uninterrupted operations and be closer to Wang, the company said.
The retailer explained that the consolidation on design and product development was so it could make sure the “company is in service to the customer.”
“Our collective goal is to continually improve upon the product, resources, and customer service David’s Bridal is providing to every person who comes into contact with our brand,” Lynch said.
When David’s Bridal emerged from bankruptcy proceedings in January, the company said then that it had “successfully completed its financial restructuring” and now has a “substantially stronger balance sheet and a clear strategy for the future.”
Among some of the new initiatives the 60-year-old retailer disclosed in January, were lower prices on best sellers, an expansion of the size range for in-store try-ons, and in-store events. But lower prices typically end-up impacting margins, and in-store events, while there’s some marketing costs attached to them, can help so long as the company can convert attendees into buyers.
How David’s Bridal can navigate those waters as it tries to keep consumers and cash flowing into stores, remain to be seen.