Specialty fashion retailer Rue21 filed for bankruptcy on Thursday, with the company opting to liquidate its assets and conduct store clearance sales.
Rue21 filed for Chapter 11 bankruptcy at the U.S. Bankruptcy Court for the District of Delaware. The company has suffered “operational losses stemming from, among other things, underperforming retail locations, the continued growth of online shopping and industry competition, inflation and macroeconomic headwinds, and difficulties raising capital in an amount sufficient to meet their liquidity needs and fund operations,” the bankruptcy filing stated.
Headquartered in Warrendale, Pennsylvania, Rue21 operated over 540 leased stores across America, with all the outlets now poised to shut down.
In the months leading to the filing, Rue21 and its advisors explored restructuring alternatives and started marketing their assets along with soliciting bids, the company said. The firm focused on soliciting two types of proposals from potential bidders—bids to buy the business and bids from consultants to conduct the wind-down, store closures, and liquidation of Rue21’s retail stores together with all its inventory and assets.
The company concluded that selling the firm “could not exceed the projected proceeds that would be realized” via store closure sales and asset liquidation. Subsequently, Rue21 adopted the second plan and solicited bids from consultants to conduct the liquidation, eventually deciding on global advisory firm Gordon Brothers Retail Partners.
For assets that won’t be sold through store closing sales, like intellectual property and intangible assets, Rue21 intends to put them up for bidding, per the filing. The company anticipates entering into a “stalking horse purchase agreement” to ensure that assets net maximum value.
A stalking horse bid is an initial bid made on a bankrupt firm’s assets that sets the low end of a bidding process.
According to the company, Rue21 expects the store closing sales to end within the next four to six weeks. The firm pointed out that some states mandate that employees be paid “substantially contemporaneously with his or her termination.”
However, the firm said its payroll systems would not be able to process the payroll information in a manner consistent with such regulations. Rue21 said it intends to pay wages of terminated employees “as expeditiously as possible and under normal payment procedures.”
Rising Bankruptcies
Rue21 isn’t the first fashion retailer to go bankrupt this year. In April, Express Inc., which dealt in casual office attire, filed for bankruptcy. In addition, fabrics and crafts retailer Joann and cosmetics brand The Body Shop also ceased operations in the United States.“As we expected, the upward trajectory in both commercial and individual related bankruptcy filing volumes continue,” said Michael Hunter, vice president of Epiq AACER. “March marks 20 consecutive months that total, individual, and commercial bankruptcy filings have registered monthly year-over-year increases.”
“Factors contributing to this trend are the higher cost of funds and interest rates, a reduction in consumer discretionary spending, higher housing costs, and a continued drawdown of excess savings. These factors coupled with the post-pandemic anticipated normalization of bankruptcy volumes lead me to believe this upward trend will continue through 2024.”
S&P only covers bankruptcy data of public companies or private firms with public debt where either assets or liabilities at the time of bankruptcy are greater than or equal to $2 million, and private companies where assets or liabilities are greater than or equal to $10 million.
In March, there were 59 new corporate bankruptcy filings—up from 48 in February. “While year-to-date corporate bankruptcies are below the previous year’s total by the end of the first quarter, they are above the comparable totals for much of the past decade,” S&P stated.
“With corporate borrowing under pressure, bankruptcy cases have steadily increased since the beginning of the year and are likely to remain elevated as expectations of near-term rate cuts appear increasingly improbable.”
So far this year, the consumer discretionary and healthcare sectors have seen the most number of bankruptcies at 20 each, followed by industrials at 18, consumer staples at nine, and financials at seven. Real estate, materials, and information technology saw five bankruptcies each.
“Among individual states, California accounted for the greatest number of filings with eight in March, followed by New York with seven, and Texas and Washington with five each. Besides Florida and Illinois, with four filings each, fewer than two companies sought bankruptcy protection in each of the remaining states,” S&P said.
