Brick-and-Mortar Retail Meltdown Has a Busy Month

After years of asset stripping by private equity firms and hedge funds.

This morning, luxury handbag retailer Michael Kors Holdings, which had had stellar sales through 2014, revealed in its Q4 earnings report that it would close up to 125 retail stores and take a $125 million charge, to save $60 million this fiscal year.

Sales plunged 11.3% year-over-year in Q4, and the company lost $27 million, or 17 cents a share. It doused investors with a gloomy outlook for its fiscal year 2018, with revenues expected to drop over 5% to $4.25 billion, and with same-store sales plunging “in the high-single digit range.”

The company was dogged by heavy promotions, a “difficult retail environment,” and a “product and store experience” that didn’t “sufficiently engage and excite consumers,” CEO John Idol said. So the company needs to enhance the store experience “to deepen consumer desire and demand for our products.”

Despite a “new $1 billion stock repurchase program” – funded with the money the company is losing, so to speak – share plunged 8.5%.

Other retailers aren’t so lucky.

On June 1, Gymboree, a children’s clothing retailer, will face an interest payment on its debt that it is unlikely to make. So a bankruptcy filing could be next. Serious bankruptcy rumors started swirling on April 11 when issues with the interest payment cropped up.

On May 4, “people familiar with the matter” told the Denver Post that Gymboree was looking to close 350 of its 1,200 stores as part of a broader restructuring in bankruptcy court. Buckling under its debt, the company has been in talks with its lenders. According to the Wall Street Journal, the company has contacted firms known for liquidating inventories and other assets during store closures.

Inevitably, there is a private equity angle. PE firm Bain Capital acquired the retail chain in 2010 for $1.7 billion, stripped out assets, and loaded the company up with debt – by now $1 billion, an amount company founder Joan Barnes described to Bloomberg as “horrendous.” Meanwhile, Walmart, Children’s Palace, and online retailers have put the squeeze on sales and margins.

To raise cash and stay alive and carve out a niche online, the company mortgaged its distribution center in 2015. In 2016, it sold Gymboree Play and Music to Zeavion Holding, a Bain investor. But in its fourth quarter, the company lost $325 million, and the CEO was sacked.

Bain Capital has been buying up Gymboree’s beaten-down bonds to have more leverage during the bankruptcy and participate in what Bain hopes will be Gymboree’s revival, “a person familiar with the matter” told Bloomberg. As of April, prices for those bonds collapsed to 4 cents on the dollar. Bain’s equity stake is essentially worthless.

This has become a common PE game in the run-up to a bankruptcy filing: buying the bonds to get more leverage and possibly, as part of the bankruptcy, exchange those bonds for equity, and regain ownership after much of the debt has been shed, only to start all over again.

On May 25, Sears Holdings announced that quarterly sales had plunged another 20% year-over-year. They were down 46% from Q1 2014 and 63% from Q1 2007. The plunges are accelerating, and given the endless store closings, cuts in advertising, and so on, revenues are now projected to drop to zero by Q1 2020. In theory. In practice, a bankruptcy filing is on the horizon. It’s hard for a highly indebted retailer run by a hedge fund manager to keep going when sales just disappear:

On May 15, Rue21 filed for bankruptcy. The teen apparel chain, which once had 1,179 stores in the US, has already started closing 400 stores in April and may close more stores. During the bankruptcy process, “Rue21 expects to continue normal business operations,” it said.

This came after “people familiar with the matter” had told Debtwire in April that Rue21 had missed principal and interest payments on its debt and was preparing to file for bankruptcy.

Once again, there is a private equity angle: the company was acquired by PE firm Apax in 2013 for about $1 billion. Back in September 2013, problems were already piling up when JPMorgan, Bank of America, and Goldman Sachs had trouble selling the junk debt they pledged to sell to fund the buyout. It took less than four years to blow up the company.

But Apax might still come out ahead. This is a prepackaged filing: the company said it had entered into a restructuring agreement with lenders holding 96.8% of the company’s secured term loan and 60.2% of the company’s unsecured notes. Apax is part of that deal.

On May 11, Marsh grocery store chain in Indiana and Ohio filed for chapter 11 bankruptcy. At its peak in 2006, it operated 116 supermarkets and 154 convenience stores.

And the private equity angle: During the LBO boom that year, the Marsh family sold the chain to PE firm Sun Capital for $325 million. Sun Capital then did what PE firms do: cut expenses, close stores, strip out assets, and load the company up with debt. It took the PE firm 10 years to get through with this.

At the time of the bankruptcy filing, Marsh was down to 67 stores. In the filing, it said it already sold its in-store pharmacy business to CVS Pharmacy. It’s trying to find a buyer for the stores and proposed an auction on June 12. If a buyer doesn’t materialize, the stores will be shuttered.

When the company notified the Indiana Department of Workforce Development that it may have to lay off 1,535 workers, it blamed “unexpected difficulties and increased competition.”

On May 4, Central Grocers filed for bankruptcy protection, after General Mills, Coca-Cola Co., and other suppliers filed an involuntary Chapter 7 liquidation petition for the grocer, claiming it owed them $1.7 million, according to the Wall Street Journal. Other suppliers too have gotten cold feet as the company has run out of liquidity to pay them.

The cooperative of grocery wholesalers in the Midwest sells its Centrella-branded products to independent retail chains. It also owns and operates three regional chains, Strack & Van Til, Ultra Foods, and Town & Country Markets. The company is trying to sell some of the more viable stores and close the rest. Inventory at its distribution center is being liquidated.

This concludes the May installment of brick-and-mortar retail meltdown. Here’s the prior installment… I’m in Awe of How Fast Brick-and-Mortar Retail is Melting Down.

And what’s going to happen to the malls? Read… Retail Meltdown Demolishes Mall Investors

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  68 comments for “Brick-and-Mortar Retail Meltdown Has a Busy Month

  1. Petunia says:

    I take exception to Micheal Kors being called a luxury brand. MK products are widely available and discounted everywhere. They are beyond saturation point.

    It’s too bad that Bain killed off Gymboree. I used to buy clothes for my son there and the brand was high quality. I never minded paying extra for their products.

    Children’s clothing is being widely recycled now. There are many stores which cater to the second hand buyer. When I thrift shop the biggest and busiest sections are often children’s clothing and toys. Low income moms only shop second hand and the selection is very good.

    Our local Winn Dixie is cutting 10 people today, from what I heard.

    • jb says:

      winn dixie (grocery store) is next shoe to drop here in south east US. they can’t compete with publix and walmart . The only retail expansion that i have read about recently is DOLLAR GENERAL.

    • TJ Martin says:

      They used to be luxury ( and there is still a high end MK ) but as you stated over the last few years overall they’ve become nothing more than a label readily available almost everywhere as has many other luxury ‘ brands ‘

      The irony is … back when this concept of luxury manufactures coming down market began many a pundit warned that’d be the eventual end of them as they morphed from quality and exclusivity to common place and cheap losing their raison d’être

      The same warning has been sounded for the automotive market as companies such as Mercedes etc .. once the last man standing … head down market with rebranded Nissans ( GLA CLA V-Class future P/U ) wearing Mercedes party dresses and badges . And yet .. they continue on

      But hey … nobody listens to logic wisdom and common sense anymore .. more often than not to their own detriment and destruction

      • George McDuffee says:

        RE: But hey … nobody listens to logic wisdom and common sense anymore .. more often than not to their own detriment and destruction
        The apparent illogic is due to conflation between the executives making the decision, and the their organization. By going mass market, they produce a bump in sales, for which they receive bonuses and/or raises. Operationally what they have done is “trousered” a company asset [reputation for quality and status] for their own short-term benefit. If done adroitly, they will be long gone from the looted company when the SHTF. One of the most blatant examples of this is GM although there were other factors.

  2. George McDuffee says:

    Now we know how the Indians felt when the white man came in and killed all the buffalo.

    • robt says:

      Actually the Indians used to run herds of buffalo off the cliffs for fun.

      • alex in san jose says:

        They did that to hunt them before they had horses (horses arrived on the plains a good few hundred years before the white man showed up) and while there was a lot of waste this way, it was to set themselves up with hides, meat to dry, etc to tide over the winter.

        • Suzie Alcatrez says:

          Teddy Roosevelt created the national park system after having witnessed the horrible slaughter and eradication of the bison years earlier.

          Will President Trump have to create a nation retailer preserve of malls so that future generations will be able to experience the joy of shopping in person?

        • Mushroom says:

          Alex, robt is correct here. You are partially correct in that they also did it for food, but it wasn’t the only reason. If only Native tribes were the stewards of the land pop culture has made them out to be.

        • number1gi says:

          Hey alex, it was the “white man” that introduced horses to North America that were then appropriated by the indigenous population.

          “In 1493, on Columbus’ second voyage to the Americas, Spanish horses, representing E. caballus, were brought back to North America, first in the Virgin Islands, and, in 1519, they were reintroduced on the continent, in modern‐day Mexico, from where they radiated throughout the American Great Plains.”

        • d says:

          Then the Sioux, a small weak woodland tribe driven, out onto the plains (Along with the similar Cheyenne) discovered them, and how to use them, and became the greatest cavalry, the world had ever seen.

          After their defeat at the little big horn, the US military realised to bring the plains Indians to heel, they simply had to take away their horses. Which they did, Most brutally.

  3. RD Blakeslee says:

    Bain capital: Co-founded by Mitt Romney.

    • Gershon says:

      I look forward to the day that corporate raiders like Romney are serving out their sentences on the same chain gang as the counterfeiters and racketeers at the Fed.

  4. unit472 says:

    Looking at this from another angle retail merchants are a major source of property and sales taxes for local governments and its not just about consumers buying goods locally. Its the gas stations and restaurants that will have fewer customers as shopping moves online.

    Public sector pension funding and muni bonds could buckle under the strain as this goes on.

    • Petunia says:

      I usually wait for the holiday weekends to shop the sales but not this Memorial Day weekend. Didn’t do any shopping or eating out. Instead we went to some local attractions, museums and historic buildings. There were many families out with all their kids doing the same thing. On the way home we saw a long line of cars heading for a concert at a local venue. People are out and they are spending, but not on junk from China.

    • George McDuffee says:

      RE: Public sector pension funding and muni bonds could buckle under the strain as this goes on.
      The pension funds and muni bonds are already toast for the most part. B&M retail collapse will only advance the date a little.

      • jerry says:

        That is a sure thing. We are going to have a government bond explosion of debt and it will be world wide. France, Italy, Greece, Turkey, take your pick.

  5. PrototypeGirl1 says:

    I believe Oklahoma recently put a sales tax on products bought from Amazon. They are upgrading our licence plates for a gain of $22 million. They are also on a continuous traffic ticket campaign, and they have started removing the cash throw boxs on the toll roads, so they can send you a bill for triple the amount if you don’t have a pass.

    • Bee says:

      I don’t know the specific situation in OK, but Amazon started collecting taxes on their own. They want a “level playing field”—23 years late!

  6. akiddy111 says:

    Good article. Ironically, Kors had just embarked on an aggressive store opening spree over the last couple of years. I suppose they feel it’s time to reverse course.

    The brand will continue to cheapen. Value trap. Also, i’m waiting to hear about store closures and layoffs from it’s watch supplier, Fossil.

    Fossil spent the last 10 years ramping up it’s business thanks to Kors and the Chinese consumer. It’s most recent (lack of) earinings guidance was a stinker. Bloated balance sheet. Poor guidance. 10,000 employees. Scary.

    As for teen retailer Rue. They spent 2010-2015 expanding from 300 to 1000 stores in mostly rural malls. Cheap, poor quality, fashion clothing in a “pile them high and watch them fly” merchandising format. Poor service. No customer loyalty. Stores looked bland and stale 3 years after opening.
    $1 billion sale to Apax. I think Apax took them public a few years earlier.
    A jolly merry-go-round of self dealers handing out special Divys to each other.

  7. tony says:

    I feel like the buffalo being run off a cliff.

  8. bev kennedy says:

    Which solves the puzzle of the late lamented Jones NY closures wind up across Canada last year.

  9. James R. Chaillet, Jr., MD says:

    My granddaughter just got a job at Spencer Gifts, another mall teen magnet. Any word on when it will announce store closings?

    • Kaz Augustin says:

      / hollow laugh /

    • Petunia says:

      I thought Spencer Gifts had closed years ago. I recently bought a hair clip at Claire Stores, the last time was ten years ago. I pick Claire as the next to go. It’s like a Chinese bazaar.

  10. RepubAnon says:

    So long as we keep letting private equity firms suck all the life out of companies they buy, leaving only desiccated shells in their wake, this trend will continue. If someone wanted to bring back good-paying jobs to the average worker, outlawing private equity abuses would be a good start. That, and a top tax bracket of 90% or so…

    It’ll never happen with Republicans in power – or most Democrats, either. Still, one can dream.

    • Gershon says:

      Indeed. As long as the electorate keeps voting for Wall Street water carriers, they lose the right to complain about being casualties of predatory finance and its mad fixation with “shareholder value” that is killing off the productive economy.

      • covfefe says:

        To be fair, voters arent given much to choose from and a real candidate (not a puppet) will have his/her character maligned to no end. Bernie? Puleze, he sold what little soul he had left for a house by the lake, which is ironic for a bolshevik but unquestionably positive for the country in the long run now that hes been relegated to a wikipedia entry.

      • Chris says:

        A few years ago, a company I served got a new CEO. His first e-mail to employees used the phrase “shareholder value” multiple times. We all looked at each other and knew what was coming. It’s not rocket science or psychic power when private equity and/or an activist investor decides they know how best to take money out of a company.

  11. Steve321 says:

    I’m really disappointed to hear about jamboree. They are one of the few places one can get high quality kids clothing these days.

    The whole country is going to pot.

    • Frederick says:

      Yup Ross Perot predicted this scenario and 911 made it inevitable IMO You know just “pull” It mentality has gone mainstream

      • Petunia says:

        I’m still sorry I voted for Clinton instead of Perot. After letting myself imagine how different things would have turned out with Perot, I became a republican.

        • robt says:

          All the economic indexes were positive for many months prior to the election, but the slogan of the Democrats was ‘It’s the economy stupid’, a mantra still remembered today. The Big Lie always works if embraced by the media. Bush went from 90% approval rating to losing the election a year later.

        • George McDuffee says:

          While we like to think things might have been different with President Perot, the problems “he Donald” is having with the RINOs and the “deep government” indicate that while the stage sets and music may have been different, operationally we would have been in about the same place unless Perot had managed to purge huge numbers of people from their entrenched positions in government.

          This is highly unlikely, given the close ties between these government entities and the civilian economic sectors such as not only the military-industrial complex identified by Eisenhower, but the FRB-financial complex, the IT complex, the education complex, the energy complex and the food cartel. (“Interest Group Analysis” is revealing on the macro level.)

          Such speculation resolves to the old questions “do times make the men or do the men make the times” and the validity of historical inevitability as popularized by Marx and Hegel.

        • Mike G says:

          Perot talked a good game about reform and such, but I worked for his company and he was as bad as any other corporation — bloated bureaucracy, egotistical arrogant management, and massive outsourcing to India. Everyone I worked with was glad he did not become Potus.

  12. NoRush says:

    CIT cut off credit to BonTon last week.

  13. Milaptis Joe says:

    In my area retail locations are closing and being instantly replaced with a plethora of flooring/home remodeling companies.

    Need Vinyl floors? Tile floors? New windowshades? Perhaps a new lighting arrangement? No problem.

    Note to self- open lawn and garden/ plant store. They’re only open half the year but they never die. Most in my area have been open for decades. What’s up with that?

  14. Paulo says:

    Nice tool sales as Father’s Day approaches. In Canada, Crappy Tire (Canadian Tire) has some pretty good offerings. Also, sales on casual clothes come up. I usually re-stock the tool crib in June and rotate/replace clothes into work duds for the remainder of the year. Canadian Tire tools (Mastercraft) have really improved over the years and they have a return policy that reminds me of long-ago Sears. It’s a pretty good store for households.

    • Pavel says:


      My GF and I went to the big downtown MTL Canadian Tire for the first time last year and ever since then her nickname for me is “Canadian Tired”.

      I can’t stand shopping, especially these big stores. And CT is nothing like the ginormous box stores they have in the States (apparently).

      She has the “shopping gene” so I prefer to go to the smaller boutiques where they have armchairs or couches for the men whilst the women browse endlessly. :)

  15. robert says:

    Roovevelt stole everbody’s gold and turned us all into debt slaves and it the debt is increased and more are getting enslaved, thats what the terror and the wars are about, they need more slaves and everybody dumb so they can be fleeced
    TVs for brainwashing turn it off and wake the fxck up

  16. Johnny says:

    Big fish eat little fish…always.

  17. Meme Imfurst says:

    Sears Holding…well, they earned the door closing.

    $1,000 in ties, bought an extended warranty, one has noise and They dodge the warranty. Weeks of calls, promises that the distric manager will call me and fix the problem. Nothing.

    Goodbye Sears, I knew you to well, when you had quality and honor.

    • Petunia says:

      Never buy the warranties, they are a waste of money, pure profit for the seller.

      • Bee says:

        Even “free rotations with purchase!” seems like a gimmick. When I brought my car into my independent mechanic’s shop for its next oil change and “free rotation”, he said “we only rotate if it’s needed”. So now after 15,000 miles, one of my tires is wearing and I can feel a vibration—wouldn’t have noticeable if the shop was rotating them with every oil change (“rotate not needed”)!

        • Bee says:

          wouldn’t have *been* noticeable [edit]

        • Bobber says:

          How about the $90 brake job being advertised all over. I took my car in for the $90 brake job. They gave me a call at work saying I needed $600 in work (new rotors, etc.). I said just put new brake pads on for $90 like you advertised, but he said they can’t do that. He said they can’t put a car on the road that needs brake service. In the end, I changed the pads myself for $40 parts in two hours. Haven’t had any brake problems at all. In fact, now that I saw how easy it was to change brake pads, I may never go to a greedy dealer again. Changing brake pads takes them about 30 minutes, but I guess they need $600 to feel good about it.

        • Bee says:

          Bobber—that is the next thing my car needs (my ABS light came on after someone drove it last week *growl*). Before, they had told me $130 for each axle without turning or working on the rotors (I’ve seen the $90 places advertised—I steer clear of such places). I just never get it done because I too fear the inevitable “needs calipers, needs rotors, sensor bad”. What would be a manageable $250 repair could easy become $500+ on a tired used car. What I need is a cheap lease—looking at you, Hyundai.

        • d says:


          Hurry to die.

          Go toymotor, with the least amount of electronics you can, if you can find one in your price range.

        • Bee says:

          d–it’s actually pronounced “Hun Day” not “Hun Die”.
          If I don’t buy another Buick, my next purchase/lease will be Hyundai or Kia. They have the best values.

        • d says:

          Hurry to die, is the nickname for “Hyundai”. Just like Toy Motor.

          I have been there. I know how all the auto and machinery brands are pronounced, they gave us a course on it.

        • alex in san jose says:

          It’s actually pronounced “hun-die” but for the American market they pushed the pronunciation “hunday” to rhyme with “Sunday”.

          Back before the brand hit the US, when I was over in Korea I kept seeing Hundai vehicles and the weird typeface they used made it look like “hundri” like it was a brand of dryer that also made cars.

        • Bee says:

          alex, sorry but you too are wrong. HUN-DAY.

  18. Old Farmer says:

    The decline of brick-and-mortar stores is usually ascribed to e-commerce plus tapped out consumers. But there are some other elements. We have an aging population, and a lot of us have all the stuff we need. I have discretionary income, but I’m not going to buy any more household goods–I already have all that stuff. All I buy any more are books. It’s also true that some people, young and old, are wising up to the fact that possessions are a burden. They require maintenance, repair, storage, insurance, cleaning, and disposal. I know about this all too well. On my farm I have tractors, implements, irrigation, cold storage, and an olive oil processing plant, etc., and I spend many hours of the week keeping all that stuff running. That’s part of the attraction of the sharing economy–let someone else deal with the burdens of ownership.

    • d says:

      And America simply has, too many malls.

      when macdonald’s outlets are opened within Gunshot rage of each other and Malls almost the same.

      It does, and is not, ending well.

  19. TJ Martin says:

    The meltdown with retailers comes as no surprise as the reasons for shaping at a brick and mortar store ( customer service / product available to see /try on etc ) rapidly diminishes as the shareholders demand less employees in order to increase THEIr profits .

    But the same happening at grocery store chains ?

    Now that … is a warning shot across the bow that everyone should be paying attention to .

    All bets are though … they’re not ! With stocks once again in the ‘ green ‘ as all this bad news falls upon us

  20. robt says:

    Always a contrarian, I make a special point of going out to buy stuff at brick and mortar stores to support the cause – using comparative pricing from the internet. Hey, it’s a reason to get out, too.
    The only thing I buy online – mostly from Amazon – is Marketplace items like books and DVDs (yes, DVDs), for a fraction of new prices. Because most of the stuff I like is remainder, esoteric, or obscure I get prices of one cent to a buck, plus shipping, and no tax. Amazon does get a cut, so they’re not totally stiffed.

  21. GSH says:

    Let me be contrary. Focusing on the “evil” PE companies is missing the point. It is like blaming a dung beetle for cleaning up shit. The companies acquired by PE outfits are essentially dead men walking, ready for the undertaker. The PE outfits extract what is valuable and discard the rest.

    The real issue is that the US is extremely over retailed. Half the stores need to close. So, as disgusting the financial dung beetles are, they provide a useful function.

    • Hongisto says:

      PE companies don’t buy terminal companies, but it’s all the same to them if companies end up that way. Do you really think that creating massive debt in a struggling and even profitable company in order to enrich themselves with mendacious dividends and tax breaks is a “useful function” for anyone except the PE? That’s not a scavenger, that’s a predator.

      • d says:

        “That’s not a scavenger, that’s a predator.”

        And the American ones, are frequently, legally fraudulent, criminal predator’s, as well.

        They have been honeing asset stripping to a fine art since they practiced on England and Europe, from the 1950’s onwards

      • covfefe says:

        Not entirely true. Many thriving small to mid sized businesses have gotten bought up by PE firms and then consolidated into larger umbrella corps where they then get larded up with debt, whereupon the pin gets pulled and it all blows up. A good example of some of the bigger microbrews were bought up in the last few years.

  22. Frederick says:

    And now for alittle after lunch humor Deutschebank has come out saying that fair value for gold is around 1060 USD per ounce That’s from the banksters who got caught with their hands in the proverbial cookie jar on numerous occasions On another note Where the heck is Jon Corzine?

    • Petunia says:

      He’s starting a new fund in NY, if you can believe it. Who in their right mind would give this guy money to manage?

  23. James says:

    Gander Mountain is another one. After chapter 11 this winter, Camping World bought it up and said it was closing “some” stores but keeping most open. Now you see EVERY Gander Mountain is under “Store Closing/Clearance/All sales final” campaign.

    My local store in Ohio had a full gutting/remodel last summer, reopening just before Thanksgiving. Six months later it’s closing. Big Homer Simpson-like “DOH!”
    Why the hell did they waste the money?

  24. d says:

    “This has become a common PE game in the run-up to a bankruptcy filing: buying the bonds to get more leverage and possibly, as part of the bankruptcy, exchange those bonds for equity, and regain ownership after much of the debt has been shed, only to start all over again.”

    In a lot of places that is regarded as fraud.

  25. Lotz says:

    Target stopped allowing employees (associates) to acquire Target stock for their 401K within the last months. Not sure what to make of that.

    This article was very enlightening and delightful to read Wolf.

    • alex in san jose says:

      That’s interesting. I was just at Target a couple of weeks ago to buy some things, struck out on all but like one thing. They didn’t have the t-shirt I wanted, didn’t have the foot powder I buy, etc.

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