Charles Darwin’s theory of evolution has retail firmly in its grip. And with more than 11,250 stores facing the firing squad this year, 2020 very well could see only the fittest survive.
Truth be told, 2019 didn’t claim hordes of retail bankruptcy victims in fashion and apparel, but most of those that filed failed to avoid a fate six feet under–a reason why this year’s store closures soared sky high.
In a sign of the times, 2019 spawned a number of companies completing their second tour of duty in bankruptcy court—nicknamed Chapter 22 filers, in reference to their previous Chapter 11 case. Industry watchers like BDO restructuring and turnaround services partner David Berliner expect the fallout to continue as the curtain rises on a brand-new decade.
“I think what we’re really seeing is survival for the fittest playing out,” Berliner said. “The stronger retailers are offering bigger discounts to entice customers in, and the weaker ones are having trouble getting customers into the stores in what has turned into a self-fulfilling prophecy.”
Because malls and shopping centers are still failing to draw footfall, “I expect to see more filings next year,” Berliner said, adding that retailers “will continue to close stores, even the strong ones.”
Although the BDO executive is keeping close tabs on certain firms with shaky numbers, he expects the bankruptcy filings to slow to a trickle at some point. It’s likely that some merchants will emerge from a bankruptcy but eventually resign to liquidation, Berliner predicted, a scenario not unlike the fate of several now-defunct 2019 filers.
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Below is a list of the major retailers in the apparel and related sectors that filed in 2019, when they filed and how they fared in bankruptcy court.
Gymboree Group Inc.
When: January
Backstory: The company listed liabilities at between $50 million to $100 million. It was the second time the company filed in two years. All 900 stores closed, although The Children’s Place purchased Gymboree’s intellectual property assets while Gap Inc. acquired its Janie and Jack business.
Shopko Stores
When: January
Backstory: The company initially filed a Chapter 11, but that soon turned into a liquidation. The general merchandise chain has been under private equity ownership since 2005, when Sun Capital Partners acquired the business for $1.1 billion.
Charlotte Russe
When: February
Backstory: The junior’s specialty chain tried to find a going-concern buyer, but ended up liquidating the business instead. It operated 512 stores across the country and in Puerto Rico, located mostly in malls and outlet centers. The company estimated liabilities at between $100 million to $500 million at the time of filing. The company sold intellectual property and the new owner has plans to open some stores.
FullBeauty
When: February
Backstory: The plus-size apparel e-commerce firm did the unthinkable for most bankrupt companies–it filed a pre-packaged Chapter 11 petition, only to exit bankruptcy proceedings a day later. Essentially the filing was designed to restructure its balance sheet, and upon emergence, the company received $35 million in new financing after eliminating $900 million in debt.
Payless ShoeSource
When: February
Backstory: The filing resulted in a liquidation that shuttered 2,100 stores across the U.S. and Puerto Rico. The shutdown wasn’t unexpected, given that the shoe retailer continued to struggle after exiting bankruptcy proceedings following its first Chapter 11 filing back in 2017.
Diesel USA
When: March
Backstory: The U.S. operations of Italy’s Diesel SpA filed for Chapter 11 protection. At the time of filing, it owed $7.4 million in unsecured trade obligations, although total debt was around $50 million. It also sustained operating losses from 2015 to 2018 due to failed strategic decisions by the prior management team. The company emerged from bankruptcy court protection in April.
Roberto Cavalli
When: April
Backstory: The Italian fashion house Roberto Cavalli SpA sought administration in Milan, and also sought bankruptcy court protection in the U.S., shutting all American operations at the same time. At the time of its filing, the firm was owned by Italian private equity firm Clessidra SGR. The company has since been acquired by Vision Investment Co., the investment arm of Dubai-based billionaire Hussain Sajwani, who owns real estate development company Damac Properties Group.
Sonia Rykiel
When: April
Backstory: The company officially entered receivership in France in April. The filing was by First Heritage Brand, which took complete ownership of the fashion house in 2017 after securing an 80 percent majority stake in 2012. First Heritage, formerly known as Fung Brands, is backed by Victor and William Fung, the Hong Kong dynasty connected to the conglomerate Li & Fung. First Heritage also filed a Chapter 7 petition to liquidate in the U.S. for stores in New York, with the operations liquidation completed by July.
Avenue
When: August
Backstory: The plus-size apparel retailer in April completed a “strategic recapitalization” that included a new revolving credit facility and new capital from its owner, private equity firm Versa Capital management. Avenue’s operations were shuttered in August when it filed its second Chapter 11 petition, closing all 222 locations. Versa acquired the retailer in 2012 during its first tour in bankruptcy court.
Barneys New York
When: August
Backstory: The former icon of luxury retail had estimated liabilities ranging from $100 million to $500 million. And while skyrocketing rent for its Madison Avenue flagship became a key talking point in its Chapter 11 filing, the truth was far more complex. Like many other retailers, Barneys found itself challenged by a rapidly evolving consumer and commerce landscape. Following Barneys’ protracted stay in bankruptcy court that attracted a colorful cast of characters, Authentic Brands Group purchased the retailer’s intellectual property and the stores are currently holding going-out-of-business sales before closing down completely. The retailer is also a victim of the “22,” having filed its first bankruptcy back in 1996. Since exiting its first tour of bankruptcy proceedings in 1999, the company has changed hands several times over the years.
Fred’s
When: September
Backstory: The discount merchandise chain filed a Chapter 11 petition with plans to wind-down operations. It began the year operating 568 stores across 15 states in towns with populations having no more than 15,000. By the time of the filing, just 80 locations remained. The chain had plans to expand by acquiring locations that would close in a 2017 Walgreens Boots Alliance and Rite Aid merger, but the deal was jettisoned due to antitrust fears that put a wrench in Fred’s growth agenda.
Forever 21
When: September
Backstory: The fast-fashion chain for the last few years had been the subject of financial concern, even though representatives for the retailer insisted it didn’t have any financial issues and was current on payments to vendors. Estimated liabilities in its Chapter 11 petition were listed at between $1 billion to $10 billion. Known for super-sized store footprints, the company fell victim to its own overambitious expansion, impacted by both changing fashion tastes and a shift in where and how consumers shop. The retailer is still operating under bankruptcy court protection.
Destination Maternity
When: October
Backstory: With total debts of approximately $244 million, the maternity apparel retailer first faced financial pressures as far back at 2016. At the time, a potential merger with French infants and kid’s clothing, footwear and accessories company Orchestra-Prémaman—which would have formed a maternity and children’s clothing company with global reach—ultimately fell through. The retailer is now in liquidation mode, and the brand management firm Marquee Brands Group is finalizing its acquisition of the retailer’s IP assets.