Retail Apocalypse? A Look at Companies Going Bankrupt in 2019
It’s all too common these days to see strip malls plastered with “Everything must go!” signs announcing yet another store closure. In 2019, numerous brands have announced bankruptcy – some closing their doors for good –while others hope for a chance at redemption through corporate restructuring.
The rise of e-commerce has left traditional retail companies struggling as the simplicity of the online shopping process woos customers away from brick-and-mortar stores. Here’s a look at some of the companies filing bankruptcy and shutting down in 2019.
Children’s Clothing Retailer, Gymboree
Popular children’s clothing retailer and owner of Crazy 8 and Janie and Jack brands, Gymboree, filed for Chapter 11 bankruptcy on Jan. 16 and closed all stores on April 22. Gymboree first filed for bankruptcy in 2017, closing nearly 400 stores and eliminating about $900 million in debt through a complete reorganization.
Children’s Place Steps In
In a Jan. 17 statement, Gymboree Group CEO Shaz Kahng announced the “gut-wrenching” decision to shutter more than 800 Gymboree, Gymboree Outlet and Crazy 8 stores in the US and Canada posted a letter to customers on the company’s website.
What’s the Fate of Gymboree-Owned Boutique Brand, Janie and Jack?
The latest announcement brings into question the security of the upscale, designer brand Janie and Jack, which currently operates 140 retail locations nationwide. Kahng, who is a long-time Gymboree customer and mom herself, was able to shed some light on the future of Janie and Jack.
Value Shoe Giant, Payless ShoeSource
Bargain shoe retailer, Payless ShoeSource confirmed on Feb. 18 that it had filed bankruptcy and would be closing all 2,500 stores in the U.S. and Puerto Rico. Like many other companies hoping for a second chance after filing bankruptcy, Payless filed for what has become known as “Chapter 22” bankruptcy.
What’s to Blame for the Demise of Payless?
It can be difficult to understand what causes a well-known brand like Payless to shutter its doors. According to the company, “unanticipated” delays from their suppliers over the past two years forced the company to slash inventory prices.
Store Closings and Layoffs
So what’s next for Payless? Individual store closings began in March and the final Payless store is expected to close by the end of May. A little more than 16,000 employees of the discount shoe retailer will lose their jobs.
Denim Fashion Brand, Diesel
Diesel USA has always been known for its flashy advertising and quality denim products. Now, it’s also known as a casualty of the recent consumer shift to online shopping. After a $90 million capital investment fell flat, Diesel USA Inc. filed for bankruptcy on March 5.
Effects From the 2008 Recession
Since its launch in 1995, Diesel has been the exclusive distributor of Diesel high-quality casual fashion products. Like many other companies, they suffered a hit during the 2008 recession. Following the recession, Diesel’s sales were able to stabilize again in 2011.
Can Diesel Make a Comeback?
As of this writing, Diesel has not announced which (if any) of its 28 brick-and-mortar stores will be closing, and the company is hoping for a chance at revival. There are plans to open new stores, as well as retrofit some existing stores, to become more cost-effective.
Home Furnishings Retailer, Z Gallerie
Apparel and accessory brands aren’t the only companies hit hard by the e-commerce effect. Los Angeles-based company Z Gallerie filed Chapter 11 bankruptcy protection on March 11, and announced plans to close 17 of its 76 home furnishings stores.
Bankruptcy Filing, Take Two
This is the second bankruptcy filing for the upscale furniture store, which was founded in 1979. Z Gallerie first filed for Chapter 11 protection in April 2009 after suffering a major sales slump. However, following that filing, they were able to somewhat recover.
Will Corporate Restructuring Be Enough to Save Z Gallerie?
Z Gallerie expects to receive $28 million in debtor-in-possession financing (which requires approval by the bankruptcy court) from its existing lender to support operations during restructuring. “Z Gallerie has made significant progress on improving all facets of our operations, enhancing our customer services and scaling our E-commerce presence,” said CEO Mark Weinsten.
General Merchandiser, Shopko Stores
On Jan. 16, Green Bay, Wisconsin-based Shopko Stores – a general retailer of apparel, home, bed and bath, furniture, home electronics, etc. – announced it had filed for Chapter 11 bankruptcy. This wasn’t altogether surprising to consumers, as big box stores have been hit hardest by the shift to e-commerce.
History of Shopko
Shopko was founded in 1962 by a pharmacist before being sold to private equity firm, Sun Capital Partners, in 2005. The company operates more than 360 stores in small to mid-sized cities. Shopko’s stores are located primarily in the Midwest, with a few locations on the West Coast.
Is Anything Left to Save of Shopko?
Last December, the company sold pharmacy assets to competitors including Hy-Vee, CVS Pharmacy and Kroger. The sale sparked speculation Shopko might file for Chapter 11 and the company slowly confirmed individual store closures. Walgreens snatched up the remaining pharmacy assets in January.
Full-Service Hair Salon, Spa and Beauty Retailer, Beauty Brands
Salon and spa superstore Beauty Brands declared bankruptcy on Jan. 6, citing nearly $7 million in debt on a secured loan and an estimated $11 million in liabilities to hundreds of creditors. This is Beauty Brands’ first declaration of bankruptcy.
A Facelift for Beauty Brands
Facing stiff competition from beauty chains (like Ulta) and hoping to improve sales, Beauty Brands rolled out a new store concept in 2015. The new concept included a blowout bar where customers could get a quick wash and blow dry, as well as a brow bar for eyebrow shaping and waxing.
Is Beauty Brands Better Off in the Hands of Its Original Owner?
Bernstein is co-founder of Bernstein-Rein advertising and is credited with inventing the McDonald’s Happy Meal. His business entity, Absolute Beauty (the stalking horse bidder for Beauty Brands) will assume the leases at 23 of the company's stores, including stores in Kansas City, St. Louis and select stores in Illinois, Iowa, Colorado and Texas.
Omnichannel Personalized Merchandiser, Things Remembered
Leading retailer of engraved gifts and keepsakes, Things Remembered, announced on Feb. 6 that it had filed for Chapter 11 bankruptcy, but had already found a buyer. The company’s sale to Enesco, a global leader in giftware and home decor and accessories, was approved by a judge and completed in March.
What Happens Now to Things Remembered?
Things Remembered operates more than 400 locations nationally, and about 250 of those are expected to close as the company attempts a reorganization. Under agreements of the sale to Enesco, online, direct mail and B2B retail operations of 176 stores will continue under the Things Remembered name.
Teen Apparel Retailer, Charlotte Russe
Charlotte Russe, the mall-based clothing company, joined the ranks of companies filing bankruptcy, filing Chapter 11 on Feb. 3. The company was founded in San Diego in 1975 and became a shopping mall mainstay popular among young women.
Can a Sale Save the Women’s Clothing Retailer?
Initially, the goal was to close nearly 100 stores, use the bankruptcy deal to get rid of some of its debt and find a buyer who could keep it in business. When the sale deadline of Feb. 17 came and went without a buyer, Charlotte Russe announced a liquidator had won the auction in bankruptcy court.
Italian Luxury Fashion House, Roberto Cavalli
Just hours after the announcement that it was seeking a deal with creditors to prevent a bankruptcy filing, Roberto Cavalli closed all of its North American shops. Famous for its flamboyant designs and animal prints, the brand, headquartered in Florence, Italy, has seen sales struggle amid the increasingly competitive global luxury market.
A New Investment Deal
In March, prior to the store closures, the company announced it was seeking a new investment deal to prevent bankruptcy. No deal emerged, and the abrupt decision was made to close all US stores. “Due to severe liquidity constraints, the company is unable to pay its debts, including ordinary operating expenses, as they come due,” court documents stated.
What’s Different About Roberto Cavalli’s Bankruptcy?
While the majority of companies filing for bankruptcy in 2019 have filed for Chapter 11 bankruptcy protection, Roberto Cavalli filed Chapter 7 bankruptcy (also known as liquidation bankruptcy). Under Chapter 7, the debtor’s assets are completely sold off to pay creditors.
Luxury Department Store, Neiman Marcus
Bankruptcy may be on the horizon for privately held Neiman Marcus Group, which holds nearly $5 billion in debt. CreditRiskMonitor warned that Neiman Marcus’ risk of going bankrupt in 2019 was as high as 50 percent. In addition to its heavy debt load, key factors contributing to Neiman Marcus’ risk of bankruptcy in 2019 include five consecutive quarters of net losses adding up to more than $617 million and negative free cash flow.
What Can Save Neiman Marcus?
In a November 2017 call with analysts, former CEO Karen Katz noted that the retailer continues to “look at ways to manage the balance sheet.” Katz retired in February 2018, and was succeeded by Ralph Lauren executive, Geoffroy van Raemdonck. He then inherited numerous challenges including a much needed sales increase – more merchandise to more customers.
Largest US Pet Retailer, PetSmart
Since it’s 2017 purchase of Chewy.com for $3.4 billion, the pet supply giant has struggled to pay down its $8 billion in debt. Like most companies facing bankruptcy in 2019, growing competition from online retailers like Amazon, Target and Walmart has PetSmart in a tight spot. That is, at least when it comes to its more than 1,600 brick-and-mortar stores in the US, Canada and Puerto Rico.
Can the Chewy.com Acquisition Keep PetSmart Afloat?
Increasing competition from e-commerce could be the end of PetSmart if the purchase of Chewy.com isn’t able to stem the company’s losses. But first, PetSmart got caught up in a disputed transfer of Chewy.com assets. Lenders further claim that PetSmart was fraudulent in its move of Chewy.com assets to a parent company and another unrestricted subsidiary.
More Bankruptcies Sure to Come in 2019
As brick-and-mortar companies struggle to maintain their identity in the world of e-commerce, more bankruptcies, store closures and layoffs are sure to come in 2019. In 2018, about 97,000 employees lost jobs due to bankruptcies in the retail sector alone, according to employment consulting firm Challenger, Gray & Christmas.