Ashley Stewart parent company Urban Brands also declared bankruptcy last week, joining recent filers Oriental Trading Company, Jennifer Convertibles and Gracious Home for a total of 16 bankruptcies so far in 2010. With the recession recently declared "officially" over as of June 2009 (although many may not feel as if happy days are here again), it's an open question as to whether the bankruptcy trend has peaked for this year or is still going strong.
Several economic factors point to continued trouble for retail. "No matter how you look at it, unemployment is still high," says Paula Rosenblum, managing partner, RSR Research. "Corporations across all sectors, not just retail, may be delivering bottom line earnings, but that's because they're controlling costs. In part that means paying less money to a smaller workforce. That will continue to pressure retailers, who rely on that workforce. And I'm not sure the retail herd has quite thinned enough."
Conventional wisdom says that the first quarter of the calendar year is the most logical time for a retailer to seek Chapter 11 protection, following holiday sales that have brought cash into its coffers. But Q3 has been a busy one for the bankruptcy courts this year, with seven companies filing for protection since the beginning of July. It's possible that vendors demanding cash up front for holiday season orders, rather than extending credit to struggling companies, pushed these retailers into insolvency. Some retailers may have chosen bankruptcy protection as a means to renegotiate existing contracts and deals, such as leases on underperforming store locations, with an eye toward emerging leaner and more competitive following a financial reorganization.
The companies declaring bankruptcy can cite a wide range of causes. Blockbuster has been struggling with a business model—renting DVDs from brick-and-mortar stores—that has been outpaced by technology faster than the chain was able to invest in new ways to deliver entertainment to consumers. Tough competition in the home furnishings market, with retailers competing for a shrinking "pie," contributed to the Jennifer Convertibles and Gracious Home filings. Ashley Stewart, which appeals to urban African-American and Hispanic women, has a customer demographic that has been hit the hardest by the economy's woes.
Even taking these factors into account, "I don't think the number of bankruptcies is terribly high for more typical times," Rosenblum notes. "Think about the rate at the height of the recession; it was over the moon."
Looking ahead, given the continued weakness in home buying and building, Rosenblum notes that "there are those who might argue that anything to do with home is still vulnerable." she says, adding "Our research tells us that already under-performing retailers are finding themselves in a bit of a death-spiral."
Will retailers—even those that have entered Chapter 11—be able to bounce back? Stay tuned.
The following retail companies declared bankruptcy during 2010:
Blockbuster: Filed Chapter 11 on September 23, 2010 in Manhattan, NY
Urban Brands: Filed Chapter 11 on September 21, 2010 in Delaware
Oriental Trading Company: Filed Chapter 11 on August 25, 2010 in Wilmington, DE.
Gracious Home: Filed Chapter 11 on August 13, 2010 in Manhattan, NY.
Jennifer Convertibles Inc.: Filed Chapter 11 on July 18, 2010 in Manhattan, NY.
Controladora Comercial Mexicana, S.A.B. de C.V.: Filed Chapter 15 on July 16, 2010 in the Southern District of New York and a Mexican Judge accepted their insolvency petition. They hope to finish restructuring by the end of 2010.
Riviera Holdings Corporation: Filed Chapter 11 on July 12, 2010 in Las Vegas, NV.
Planet Organic: Sold its assets to creditor Catalyst Capital Group to wipe out $31.1 million in debt. Deal closed on June 4, 2010.
Gems TV: Filed Chapter 11 on April 5, 2010 in Wilmington, DE and is liquidating its assets.
Rock & Republic: Filed Chapter 11 on April 1, 2010 in New York, NY. It plans to reorganize.
BKV, Inc, d.b.a. Tellos: Filed Chapter 11 on March 19, 2010 in Boston, MA. It plans to close three of its eight clothing stores.
Swoozie's, Inc.: Filed Chapter 11 in Atlanta, GA on March 2, 2010 and was purchased by Gart Capital Partners.
Movie Gallery, Inc.: Filed Chapter 11 in Virginia on February 2, 2010. It plans to close all of its stores.
Southern Golf Partners: Filed Chapter 11 on January 20, 2010 in Atlanta, GA.
Bernie's Audio Video TV Appliance: Filed Chapter 11 on January 14, 2010 in Hartford, CT and is liquidating.
E.R.T. Sales of Hawaii: Filed Chapter 11 on January 12, 2010 in Hawaii and plans to reorganize.
For related content see:
Blockbuster Files for Bankruptcy; Will Evaluate Store Profitability
Ashley Stewart Owner Urban Brands Files for Bankruptcy
Blockbuster Edges Closer to Bankruptcy Filing
Oriental Trading's Chapter 11 Filing is 14th Retail Bankruptcy in 2010
Blockbuster Bankruptcy in Works Could Shut 800 Stores