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Year in Review: Value Investors Reshape Landscape

No one wants bad news, but it can create opportunities.

Value investors, as they prefer to be called these days, used to be referred to by another euphemism. Twenty years ago, they were better known as vultures or bottom feeders. That’s because they fed on bankrupt or highly-distressed companies. And while distress is still their playground, the modern assets that are up for sale are far different from before.

Gone are the days where a bankrupt retailer’s assets were just its name, stores and inventory. And if a decline in foot traffic meant there was no reason for a retailer to have stores, the nameplate would enter the retail graveyard. That graveyard is littered with a number of names from the past, whether its a Two Guys, Korvette Jameway or Alexander’s from the discount department store sector, or the more modern Bradlees or Caldor chains. There were also the five-and-dime stores such as Woolworth, McCrory and J.J. Newberry, the department store banners Edison Brothers and Gottschalks, women’s specialty apparel chains Martin’s, Casual Corner, Gantos and Merry-Go-Round, men’s retailers Today’s Man and Chess King, and from the home improvement sector Rickel, Channel Home Centers and Martin Paint.

But then the internet came of age, and these days some retailers may be worth more dead than alive.

The past need for stores is no longer a requirement when the nameplates can live in an online-only operation. And while the name has some value, sometimes the customer lists provide the real prize, especially if the acquirer can mine the list for use at its other retail operations.

One name that came up consistently this year is Retail Ecommerce Ventures (REV). Started by Tai Lopez and Alex Mehr, the investment firm was active on the bankruptcy front, snapping up the intellectual property and related assets of Pier 1, Stein Mart and Modell’s Sporting Goods. The three banners join REV’s other nameplates, which include Radio Shack, Dressbarn, and Linens-N-Things.

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Another active investor is Authentic Brands Group, a brand management firm. Prior to 2020’s buying spree, the group acquired bankrupt Barneys New York in November 2019. ABG added Brooks Bros. and Forever 21 to its portfolio this year and is also looking across the pond, contemplating bids for the insolvent Debenhams and for Arcadia Group, which owns the crown jewel Topshop and Topman franchises.

Not all deals involved value investors. One, Bealls Inc., was a strategic investor. It owned the Bealls name for stores in Florida, Georgia and Arizona. The company is unrelated to either bankrupt Stage Stores or the Bealls stores operated by Stage. It’s purchase of Stage’s IP for $7 million now puts all Bealls stores under the same roof, as well as gives the company the Goody’s, Gordmans, Palais Royal and Peebles nameplates.

And there are others in the U.K still in insolvency that could get sold in the next week or early next year. Those banners include Debenhams, Edinburgh Woolen Mill, Peacocks, and the retail brands owned by Arcadia Group.

Below are the fashion names that got sold while under bankruptcy court supervision in 2020.

Forever 21

Acquirer: Authentic Brands Group, Simon Property and Brookfield Property Group

Backstory: The teen fast-fashion chain filed for bankruptcy in Sept. 2019 and was acquired by the three in a deal valued at $81.1 million. ABG and Simon each own a 37.5 percent stake in the company, with Brookfield taking a 25 percent ownership.

Pier 1 Imports

Acquirer: Retail Ecommerce Ventures

Backstory: The home goods retailer couldn’t find a buyer and liquidated operations, closing 500 stores in the process. The IP and related assets were acquired by Retail Ecommerce Ventures for $31 million, which plans to launch a new business for the brand.

Modell’s Sporting Goods

Acquirer: Retail Ecommerce Ventures

Backstory: The company closed some stores and then filed a petition for Chapter 11 bankruptcy court protection in March, only to shut down due to COVID-19. In June, the remaining 107 stores reopened to begin going-out-of business sales. Retail Ecommerce Ventures (REV), which also acquired Pier 1’s intellectual property assets, acquired Modell’s for $3.6 million. REV also owns the Dressbarn and RadioShack nameplates.

Laura Ashley Holdings

Acquirer: Gordon Brothers

Backstory: The struggling company collapsed into administration following the closures of stores due to the coronavirus outbreak in the U.K. Its intellectual property and related assets were sold to Gordon Brothers in April. The brand’s home products will return to the U.K. market and in Ireland next year in stores and online through a license Gordon Brothers signed with Next plc.

Oasis and Warehouse

Acquirer: Hilco Capital

Backstory: Another early victim of the coronavirus, the U.K. high fashion brands fell into administration. Hilco Capital agreed to a deal to buy its intellectual property assets, but two months later, in June, the IP and related assets were sold to Boohoo.

J. Hilburn

Acquirer: The Apparel Group

Backstory: Like True Religion, men’s custom clothier J. Hilburn was one of the first retailers to emerge from Chapter 11 in 2020. The company was acquired by The Apparel Group (TAG) in July, the U.S. distribution arm for Hong Kong-based apparel firm TAL. TAG was also the men’s apparel brand’s largest trade vendor.

John Varvatos

Acquirer: Lion Capital

Backstory: The rock ‘n’ roll men’s wear brand was one of the early victims of the pandemic, but it did reach an agreement with majority owner and investor Lion Capital to sell the business to it as part of the company’s reorganization plan.

Aldo Group U.K.

Acquirer: Bushell Investment Group

Backstory: The Canadian footwear retailer filed for bankruptcy court protection in Canada, the U.S. and Switzerland, followed by a similar move by its UK arm, Aldo UK, a month later.  The UK business was sold to Bushell Investment Group in September, which will keep all 11 stores in operation, as well as the e-commerce platform.

Stage Stores

Acquirer: Bealls Inc.

Backstory: The department store operator had been struggling for a few years, but seemed to have found a new model when it said it would convert its retail nameplates to the Gordmans off-price concept. But then Covid-19 hit and the company was unable to save its business. The Chapter 11 filing was to conduct an orderly wind down of operations. A competitor, Bealls Inc. has acquired the bankrupt firm’s IP assets—including its Bealls, Goody’s, Gordmans, Palais Royal and Peebles nameplates— for $7 million.

J.C. Penney

Acquirer: Simon Property Group and Brookfield Asset Management

Backstory: When there’s a will, there’s a way, as the saying goes and this mass merchant got its exit by sheer grit, thanks to the help of bankruptcy attorneys, lenders and its two largest mall landlords who needed the retailer to stay in business and keep its stores open. The operating business was sold to Simon Property Group and Brookfield Asset Management.

Victoria’s Secret U.K.

Acquirer: Next PLC

Backstory: The U.K. arm of Victoria’s Secret fell into administration, but received a new lease on life through a joint venture between L Brands Inc. and Next PLC, with Next the majority owner holding a 51 percent stake. The joint venture will operate VS stores in the U.K. and Ireland. The online operation of VS is still operated by it’s U.S. parent L Brands and will be folded into the joint venture next spring.

Lucky Brand

Acquirer: Sparc (joint venture between Simon Property Group and Authentic Brands Group)

Backstory: Denim retailer Lucky Brand Dungarees, a fixture at shopping malls, got hurt with the coronavirus outbreak when nonessential stores had to close. The brand was acquired in August by a joint venture called Sparc, formed by mall landlord Simon Property Group and brand management firm Authentic Brands Group.

Brooks Brothers

Acquirer: Sparc (joint venture between Simon Property Group and Authentic Brands Group)

Backstory:  Troubles at Brooks Brothers had been simmering for years, and the coronavirus outbreak didn’t help its cash flow when stores had to temporarily close. The seller of classic American apparel ended up in Chapter 11 proceedings, but luckily got its second chance when Sparc—the Simon Property Group and Authentic Brands Group joint venture—offered to buy the brand as a going concern for $305 million.

RTW Retailwinds

Acquirer: Saadia Group

Backstory: The company, which operates women’s apparel chains under the nameplates New York & Co., Fashion to Figure and Happy x Nature, on Monday filed a voluntary Chapter 11 petition for bankruptcy court protection. Saadia Group acquired the New York & Co. and Fashion to Figure nameplates for $40 million, and will operate them solely as online businesses.

Ascena Retail Group

Acquirer: Sycamore Partners, FullBeauty Brands Operations and Bluestar Alliance (each buying different nameplates)

Backstory: The company had been struggling for several quarters, and had already sold a majority stake in Maurices and completed a wind-down of its Dress Barn operations. It denied that bankruptcy was even being considered, but then the impact of Covid and mandatory store closures ended up pushing the company into Chapter 11. It sold its nameplates Catherines to FullBeauty Brands Operations LLC for $40.8 million in September and Justice to Bluestar Alliance for $90 million in November. On Dec. 8, the bankruptcy court gave its approval for Ascena to sell its remaining brands—Ann Taylor, Loft, Lane Bryant and Lou & Grey—to private equity firm Sycamore Partners for $540 million.

Stein Mart

Acquirer: Retail Ecommerce Ventures

Backstory: The 281-door department store operator had already let go of most of its employees when it filed for Chapter 11 bankruptcy court protection. It had been on the watch list of credit analysts for a number of years. The company’s intellectual property assets were sold to Retail Ecommerce Ventures for $6 million, a company that specialized in asset-light operations by owning retail business that sell online only. Recent acquisitions include Modell’s Sporting Goods, Pier 1, Dressbarn andRadio Shack.

Francesca’s

Acquirer: TerraMar Capital

Backstory: The women’s budget chain filed its Chapter 11 petition to sell the business to TerraMar Capital. The company operated 558 stores at the time of its filing, but had already closed 137 stores last month. Days after its filing, Francesca’s said it would shutter another 97 stores.