More Retailers File for Bankruptcy Twice
When a business files for bankruptcy twice, a question naturally arises: did the company simply not learn any lessons from the first go-around or are there serious problems in the industry?
CNBC has an interesting article on retailers that have filed for bankruptcy protection twice in the past decade. The retail industry has struggled recently, due to the rise of e-commerce, in particular Amazon. The gigantic retailer has become the “go to” location for people buying everything from clothes and shoes, to books and even furniture.
According to CNBC, there were 22 retail bankruptcies in 2019. This was an increase from the 17 bankruptcies that sector saw in 2018, even though the intervening year saw strong economic growth. Since 2015, there have been 80 retail bankruptcies.
Digging Out from Debt
Large businesses that hope to stay in business typically file for Chapter 11 bankruptcy protection. This allows the debtor to reorganize debts while staying in possession of the business. Creditors typically have to take a haircut on their debts. Even though Chapter 11 empowers creditors to reject any proposed restructuring of debt, the bankruptcy judge always has the power to force a plan on them over their disapproval.
Many large retailers are struggling with expensive leases, especially in urban areas where real estate is scarce. By filing for bankruptcy, they can often break leases and other contracts, which can free up money. However, some retailers have found themselves right back in bankruptcy court a second time.
Haven’t We Been Here Before
Here are some of the retailers that have entered bankruptcy protection for a second time. For some, this will be the last time, since they have sold off their brands to competitors:
- Fairway Market, which initially filed for chapter 11 protection in 2016, has recently filed for protection another time in January 2020. The company is selling some of its stores and looking for buyers for the others.
- Payless, which filed for Chapter 11 protection in 2017 was back at it a mere 2 years later, filing a second time in February 2019. The company is closing permanently in the United States.
- Gymboree filed for bankruptcy protection initially in June 2017. However, the children’s clothing retailer was back at it a mere 18 months later, filing for Chapter 11 protection a second time in January 2019. Gymboree sold its store and brands to other companies, such The Children’s Place and Gap.
The consecutive bankruptcies, with little time passing in between, are clearly signs of an industry in crisis.
Are Small Businesses Vulnerable?
Although gigantic brands make the newspapers when they go under, almost any business is vulnerable to changes in how consumers shop. Many small businesses provide goods to retailers, so they could struggle as more people switch to buying online.
At Nowack & Olson, our Plantation bankruptcy lawyers work with small and family businesses that are in financial distress. If you are having trouble making payroll or paying your vendors, please contact us today. We can discuss how bankruptcy can help, including whether you should liquidate. Call 888-813-4737 to speak with an attorney.