California Apparel News

Bankruptcies and store closures spiked in 2019, and some retailers hoped bankruptcy could give them an edge during a year when many thought the chips were down for retail.

Influential retailers such as Forever 21, Barneys New York, as well as long-suffering retailers such as Dress Barn filed for bankruptcy. A sense of decline increased when major retailers such as Gap Inc. said that it would close 130 stores by the end of the fourth quarter of its 2019 fiscal year.

In May, New York–headquartered Coresight Research forecasted that as many as 12,000 store locations were at risk of closing by the end of the year. And The Conference Board, a nonprofit research group, released a survey of chief executive officers’ confidence levels. It found that it was only a few points higher than the first quarter of the Great Recession in 2009.

“CEO confidence declined to its lowest level in a decade,” said Lynne Franco, senior director of economic indicators at The Conference Board. “Tariffs and trade issues coupled with expectations of moderating global growth are causing a heightened degree of uncertainty. As a result, more CEOs than last year say that they have curtailed investment.”

Since bankruptcy seemed to be a more common occurrence in 2019, some retailers tried to play it to their advantage, said Syama Meagher, chief executive officer of the retail consultancy Scaling Retail.

“I think retailers are looking at bankruptcy as an opportunity to restructure,” Meagher said. “Filing for bankruptcy does not indicate that a brand has died. Bankruptcies can be strategic. It can pave the way to a second or a third life for a brand.”

But bankruptcy is a risky strategy, she said. Since bankruptcies are covered extensively in media, retailers and brands can lose their cachet with the public when they declare bankruptcy. The private-equity firms buying bankrupt firms also have their own ideas on the direction they want to take their new property.

“The purchasers want to break down bankrupt companies and sell them for their parts,” Meagher said. “I’m scared that Barneys will become what Henri Bendel is today—a highly licensed brand that has lost its edge. The Barneys name is strong. It might get over-licensed and lose its integrity through the acquisition.”

While many were gloomy about retail during 2019, the research and advisory firm IHL Group said that anxiety over store closures was overstated. The latest iteration of its multiyear study, “Retail’s Renaissance—The True Story of Store Openings/Closings,” was released in August. IHL said that more than five retail chains are opening stores for every retailer that is closing stores in 2019.

The research firm also reported that 20 retailers represent 75 percent of all store closures. Closures and bankruptcies were more the fault of the individual retailer than a problem with the whole industry, according to Lee Holman, IHL Group’s vice president of research.

“U.S. retail has increased $565 billion in sales since January of 2017, fed not just by online-sales growth but net store sales growth,” Holman said. “Clearly there is significant pressure in apparel and department stores; however, in every single retail segment there are more chains that are expanding their number of stores than closing stores.”

One retailer who made a rebound from bankruptcy in 2019 was Charlotte Russe, a San Diego–headquartered retailer for young women’s fashions who announced its Chapter 11 bankruptcy in February. In March, Canadian company YM Inc. acquired Charlotte Russe for an undisclosed amount. By June, it was announced that Charlotte Russe was back in the bricks-and-mortar business. It opened a handful of stores in the United States and also opened a digital commerce channel, www.charlotterusse.com.

Retail might be at the beginning of a new chapter. Business on Black Friday, the traditional start of the holiday shopping season, broke records this year. It was a sign that the worst in a wave of bankruptcies was over, said Ron Friedman, partner and head of retail and consumer products at Marcum LLP, which offers accounting, financial and consulting services.

“Business is good right now. People are making money. Consumer confidence is high,” he said. But the proverbial rising tide may not lift all boats. “If you’re strictly a bricks-and-mortar store, these stores must improve their experiences.”