Apparel retail has taken major hits from the COVID-19 pandemic so far, but it appears a longstanding home furnishings retailer has succumbed to a fate even worse than bankruptcy. Pier 1 Imports is the latest casualty of the pandemic, with the troubled retailer revealing that it is seeking court approval to wind down its retail operations “as soon as reasonably possible” once store locations can reopen.
In January, the retailer announced it would permanently close 450 of its more than 900 stores, before filing for Chapter 11 bankruptcy and putting itself up for sale one month later. But as the coronavirus outbreak forced the retailer to put all of its stores on pause, and furlough all associates and 65 percent of its home office in Fort Worth, Texas, Pier 1 failed to attract a suitor interested in buying and reviving the struggling company.
“We are grateful to our dedicated and hardworking associates, millions of customers and committed vendors who have collectively supported Pier 1 for decades,” said Robert Riesbeck, Pier 1’s chief executive officer and chief financial officer. “We deeply value our associates, customers, business partners and the communities in which we operate, and this is not the outcome we expected or hoped to achieve. This decision follows months of working to identify a buyer who would continue to operate our business going forward. Unfortunately, the challenging retail environment has been significantly compounded by the profound impact of COVID-19, hindering our ability to secure such a buyer and requiring us to wind down.”
As part of the wind-down, Pier 1 intends to sell its inventory and remaining assets, including its intellectual property and e-commerce business, through the court-supervised process.
The pandemic has taken a toll on many traditional retailers, particularly in specialty apparel and department store sectors. Neiman Marcus, J.Crew, J. Hilburn, Stage Stores, Aldo, John Varvatos and most recently J. C. Penney have all filed for bankruptcy in recent weeks. Like Pier 1, Stage Stores has said it will liquidate all its stores if it’s unable to find a buyer as well.
Similar to the apparel retail collapses, Pier 1 has been on a long road marred by declining sales and sagging store traffic amid changing consumer shopping habits. Upon first announcing the store closures in January, Pier 1 revealed in its third-quarter earnings report that comparable sales declined 11.4 percent compared to the third quarter of fiscal 2019, with net sales decreasing 13.3 percent to $358.4 million. Net losses for the quarter totaled $59 million.
More recently, online competition from Wayfair and Amazon have significantly increased pressure on Pier 1, while mass merchants such as Walmart and Target expanded and improved their merchandise. At the same time, competitors such as Ikea and TJX’s Home Goods moved into more markets, taking share from Pier 1 stores.
Pier 1 intends to initiate store closing efforts and liquidation sales once store locations can reopen, in compliance with COVID-19 guidelines from local government and health officials. The company is currently continuing to serve customers through Pier1.com, with orders processed and filled as usual.
Kirkland & Ellis LLP and Osler, Hoskin & Harcourt LLP are serving as legal advisors to Pier 1 in the U.S. and Canada, respectively. AlixPartners LLP is serving as the company’s restructuring advisor and Guggenheim Securities, LLC is serving as the company’s investment banker. Alongside these advisors, Pier 1 engaged in a thorough analysis of all available alternatives prior to deciding on this course of action, determining that a wind-down is the best way to maximize the value of the retailer’s assets.
Pier 1 expects to conduct its asset sales in accordance with the bidding procedures established by the bankruptcy court on Feb. 18, 2020. The retailer has proposed July 1, 2020 as the asset bid deadline, July 8, 2020 as the auction date and July 15, 2020 as the sale hearing date.
The company’s debtor-in-possession lenders have agreed to allow Pier 1 to overdraw the loan by approximately $40 million to support its continued operations through the wind-down period.
Pier 1 plans to file a Chapter 11 plan and disclosure statement to bring closure to all parties in the bankruptcy cases, including the DIP lenders, an ad hoc group of term lenders and its creditors’ committee.