From high-level management errors to disruptions caused by the pandemic, major retailers such as Express, Rue21, and Bed Bath & Beyond have all filed for bankruptcy. The retail industry is currently at a critical juncture, grappling with challenges like declining physical store sales, overwhelming debt, and inefficient operations.
While retail bankruptcies often lead to many retail companies shutting down permanently, some businesses recover after restructuring. Companies like The Body Shop and Pirch are examples of companies that have successfully navigated bankruptcy and continued their operations.
Typically, bankruptcies are categorized into two types. Chapter 7 Bankruptcy usually spells the end for a business, involving liquidating all assets to pay off creditors. Chapter 11 Bankruptcy, conversely, provides a lifeline for companies in distress. It allows them to restructure and establish manageable plans for debt repayment while continuing to operate. Businesses that undergo Chapter 11 can reemerge stronger, much like a phoenix rising from the ashes.
Top Retail Bankruptcies Filings in the Last Year
Here is an overview of the latest retail-related bankruptcy filings:
Rue21 – May 2024
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On May 4, 2024, Rue21, a retailer specializing in teen apparel, filed for Chapter 11 bankruptcy protection, marking its third filing since 2003. This nearly 50-year-old company announced plans to shutter all 540 stores and cease ecommerce operations within the next four to six weeks.
In its bankruptcy filing, Rue21 also intended to sell its intellectual property, hoping to preserve the brand in a new incarnation. The filing listed Rue21’s assets and liabilities as being from $100 million to $500 million.
ProSomnus – May 2024
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On May 7, 2024, ProSomnus, a leading manufacturer of non-CPAP treatment devices for sleep apnea, entered Chapter 11 bankruptcy. This filing aims to secure new funding from current debtholders, enabling the company to sustain its operations. ProSomnus is seeking up to $13 million in debtor-in-possession financing to support its financial needs during bankruptcy.
As part of its restructuring plan, ProSomnus aims to continue its operations without disruption, ensuring that salaries, customer orders, and vendor payments are maintained as usual during and after the restructuring period.
Express Inc. – April 2024
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On April 22, 2024, clothing retailer Express Inc. filed for Chapter 11 bankruptcy protection, attributing the decision primarily to a prolonged decrease in foot traffic at U.S. shopping malls. Additional factors contributing to the filing include diminished sales due to high pricing and unattractive products and challenges adapting to the remote work environment post-pandemic. The company reported assets and liabilities ranging from $1 billion to $10 billion.
Headquartered in Columbus, Ohio, Express Inc., which operates Express, UpWest Express, and Bonobos brands, announced plans to close nearly 100 of its over 500 Express stores and all its UpWest locations. The company has received a non-binding letter of intent from a consortium led by WHP Global, which includes participants like a wholly owned indirect subsidiary of Brookfield Properties and Simon Property Group, L.P. This move aims to sell most of the company’s retail operations potentially. Express and its subsidiaries have filed voluntary Chapter 11 petitions as part of the strategy to facilitate this sale process.
99 Cents Only Stores – April 2024
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In April 2024, discount retailer 99 Cents Only Stores filed for Chapter 11 bankruptcy in Delaware, indicating plans to cease its business operations and liquidate its assets. The company stated that filing for bankruptcy protection would facilitate the previously announced wind-down process. To support the liquidation, 99 Cents Only secured $60.8 million in debtor-in-possession financing, pending court approval.
Faced with ongoing challenges such as the pandemic, increased shrinkage, inflation, and shifts in consumer demand, the company concluded that continuing operations was unfeasible. Consequently, all 371 stores of the chain initiated going-out-of-business sales in April. Additionally, the company’s owned and leased real estate properties were put up for sale.
Pirch – April 2024
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The retailer of luxury appliances, Pirch, filed for Chapter 7 bankruptcy in the U.S. Bankruptcy Court for the Southern District of California on April 19, 2024. Pirch changed its business plan by closing its East Coast stores and focusing on professional clients like interior designers and builders. Pirch was formerly praised for its direct-to-consumer, high-touch experiential sales technique. The bankruptcy filing reveals liabilities ranging from $100 million to $500 million against assets valued between $10 million and $50 million, with 1,000 to 5,000 creditors involved.
Pirch’s most considerable outstanding debts include $33 million to American Express, $5.5 million to Worldpay, and significant amounts to vendors like Sub-Zero ($4 million), Toto ($753,696), and Kohler ($567,345). Additionally, the company owes substantial sums to over 3,000 stakeholders, including design firms, contractors, and individual consumers.
Many consumers had unfilled purchases, landlords had missed rent, and vendors had undelivered items when operations halted in late March 2024. Legal issues have gotten more complex; state authorities have received complaints about layoff procedures from employees as well as litigation from American Express, Worldpay, Sub-Zero, consumers, and landlords. Some customers have even sought criminal investigations into the company’s practices.
The Body Shop – March 2024
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On March 9, 2024, the U.S. division of The Body Shop declared Chapter 7 Bankruptcy. This came less than a month after its U.K. counterpart entered administration, similar to Chapter 11 bankruptcy. When the U.K. administration process started, the U.S. division lost access to its cash reserves. This made it difficult for the company to meet its financial obligations, so operations in the U.S. had to cease on March 1. The formal bankruptcy filing followed shortly after.
This bankruptcy declaration was due to financial difficulties, high lease obligations, and an unexpected transfer of funds to its parent company prior to the latter’s insolvency proceedings in the U.K.
Joann – March 2024
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In March 2024, Joann, a leading arts and crafts retailer, filed for Chapter 11 bankruptcy at the U.S. Bankruptcy Court in the District of Delaware. The filing was prompted by liquidity issues and a decline in sales, attributed to reduced consumer spending. In April 2024, the court approved a bankruptcy reorganization plan for Joann, and the company is poised to exit bankruptcy shortly. This plan will enable Joann to halve its $1.1 billion debt, maintain operations at its over 800 stores, and preserve more than 18,000 jobs.
Previously listed on the Nasdaq, Joann’s stock was delisted on March 28th, and the company is expected to transition to private ownership as part of its restructuring process.
Hello Bello – October 2023
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In October 2023, Hello Bello, a baby care brand co-founded by actors Dax Shepard and Kristen Bell in 2019, sought Chapter 11 bankruptcy protection. The company attributed its financial difficulties to supply chain disruptions, escalating shipping costs, and increased purchase prices. Hello Bello reported having assets and liabilities of at least $100 million each in its bankruptcy filing, with over 200 creditors.
The bankruptcy filing was strategically used to facilitate a stalking horse bid by private equity firm Hildred Capital Management. This initial bid is valued at approximately $65 million, though it remains open to higher offers. Despite opening its own manufacturing facility to mitigate rising costs, Hello Bello faced challenges such as competitive staff hiring and delays in setting up production lines, which delayed the anticipated cost-saving benefits.
Showfields – October 2023
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On October 6, 2023, Showfields, a retailer known for hosting various brands’ products for a fee and regularly rotating its inventory, filed for Chapter 11 bankruptcy protection in the Eastern District of New York Bankruptcy Court. The company pointed to several factors leading to its financial distress, including the pandemic, declining sales, escalating debt, and rigid lease terms. When filing, Showfields reported having approximately $3,117.58 in cash and liabilities ranging between $1 million and $10 million.
This filing decision followed a period of lower-than-anticipated revenues, exacerbated by weak sales before and throughout the COVID-19 pandemic. Although Showfields has closed some U.S. store locations, it is exploring potential opportunities to expand into the European market.
Soft Surroundings – September 2023
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Soft Surroundings Holdings, LLC, a St. Louis-based retailer that offers women’s beauty products, clothing, home decor, and gifts, filed for Chapter 11 bankruptcy protection on September 10, 2023. The filing was made in the U.S. Bankruptcy Court for the Southern District of Texas in Houston, where the company disclosed assets up to $50,000 and liabilities ranging between $50 million and $100 million.
Soft Surroundings Holdings LLC, the parent company, announced it would close all 44 of its leased retail locations as part of the bankruptcy plan. Additionally, the company plans to sell its online and catalog operations to Coldwater Creek. Over the past year, Soft Surroundings has undertaken significant measures to stabilize its finances, including resizing its operations to align better with current market conditions. Bridgit Lombard, the executive chair of Soft Surroundings, stated that these steps would allow the company to adapt and restructure, aiming to emerge stronger and ensure the brand’s continued presence for its customers and partners.
Bed Bath & Beyond – April 2023
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On April 23, 2023, Bed Bath & Beyond, a prominent home goods retailer, filed for Chapter 11 bankruptcy protection, unable to secure the necessary funding to remain operational. The company initiated a liquidation sale and sought court approval to auction off its assets. Having survived the Great Recession and outlasted its primary competitor, Linens ‘n Things, Bed Bath & Beyond operated over 1,500 stores as of 2018.
During the 2000s, the company expanded its physical store presence but fell behind rivals like Amazon, Walmart, and Target in developing its e-commerce capabilities. This gap and supply chain disruptions left the retailer poorly positioned to meet the growing consumer demand for online shopping.
Confronted with falling revenues and substantial debt, Bed Bath & Beyond attempted to cut costs by scaling back on its signature marketing strategies, such as mailer coupons and branded inventory. Despite narrowly avoiding bankruptcy in February through a share sale, the company failed to meet the agreement’s terms. It has now announced plans to close its stores and wants to sell parts of the business.
David’s Bridal – April 2023
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In April 2023, wedding gown retailer David’s Bridal filed for bankruptcy shortly after announcing the layoff of over 9,000 employees. The company had previously navigated through bankruptcy successfully in 2019, only to face the challenges brought on by the pandemic, which severely disrupted the wedding industry and halted demand for wedding apparel.
Although weddings have rebounded, David’s Bridal pointed out that shifts in consumer preferences for wedding apparel post-pandemic have negatively affected its business. Additionally, the retailer noted that broader macroeconomic instability has further impacted its financial stability.
Conclusion
Recent notable bankruptcies in the retail sector reflect a landscape in flux, shaped by a confluence of factors ranging from mismanagement to the disruptive effects of the pandemic. While some companies like Rue21 and 99 Cents Only Stores face the prospect of liquidation, others such as ProSomnus and Joann are pursuing Chapter 11 restructurings to sustain operations and emerge stronger.
These cases underscore the dual nature of bankruptcy, with Chapter 7 representing the end for some businesses while Chapter 11 offers a chance for restructuring and revival. Through strategic planning and adaptation, companies like The Body Shop and Pirch exemplify the possibility of emerging from bankruptcy more robust than before.
As the retail industry navigates ongoing challenges, the ability to innovate, adapt, and respond to evolving consumer preferences will be critical for future success. Whether through restructuring, liquidation, or acquisition, these bankruptcies signal a shifting landscape where resilience and strategic decision-making are paramount.
