When a company files for Chapter 11 bankruptcy, that doesn't mean it has filed kaput—far from it.
Filing under Chapter 11 is like sending an SOS signal: it allows the business to continue operating while it attempts to restructure operations and pay off its debts (unlike a Chapter 7 bankruptcy filing, which closes the business and liquidates its assets). The recovery rate for a company filing Chapter 11 is said to be between 10% and 40%.
But no two Chapter 11 bankruptcies are the same. You may be surprised to learn that some of the world's largest companies, such as American Airlines, Marvel Entertainment, and General Motors, have at some point filed for Chapter 11, but through mergers, new revenue streams, or simply operating more smart, everything was achieved. return to profitability.
Other big names were not so lucky: funeral rites were held for Lehman Brothers and WorldCom, for example, because they had been operating fraudulently, although some argued, in the case of Lehman, that they were “too big to fail.”
How many companies have filed Chapter 11 since the COVID-19 pandemic?
The COVID-19 pandemic, caused by the SARS-CoV-2 virus, not only made millions of people seriously ill; It also had a profound impact on the way we live, work and shop. At the start of 2020's stay-at-home orders, hundreds of restaurants closed, including household names like Ruby Tuesday, California Pizza Kitchen and Sizzler.
According US Federal Courts, Chapter 11 business filings increased in 2020, while Chapter 7 filings actually decreased. But as vaccines were developed and people returned to work and school, they also resumed their previous shopping habits; in fact,ai/wp2/the-comeback-of-the-mall-in-2024″> mall traffic in 2023 it was down only 5.8% compared to 2019, which is much better than in 2021, when it was down 15%.
However, more turbulence was felt in the years after the pandemic, when the CARES Act government stimulus, which had helped many businesses cover their payrolls and other operating expenses, expired in 2021.
Bankruptcy Filings by Chapter 2019-2023
| Year | Chapter 7 | Chapter 11 |
|---|---|---|
|
2023 |
261,277 |
7,456 |
|
2022 |
225,455 |
4,918 |
|
2021 |
288,327 |
4,836 |
|
2019 |
480,201 |
7,020 |
Through such turbulent waters, we examine some of the biggest-name retailers that went bankrupt and which have risen from the ashes under new management.
5 Big-name Chapter 11 Bankruptcies in Retail
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ritual of help
It was the third-largest pharmacy chain in the country (only Walgreens and CVS were larger), but thanks to slow sales, mounting debt and federal investigations into whether it illegally filled prescriptions during the opioid crisis, Rite Aid filed for bankruptcy protection. Chapter 11 in October 2023.
Earlier in the year, the chain had reported a quarterly loss of $241 million due in part to a decline in revenue from COVID-19 vaccines and rapid testing. Rite Aid simply couldn't keep up with the convenience of shopping at big-box stores like Walmart, Target, and Costco.
As part of its Chapter 11 settlement, the company secured $3.5 billion in financing and named a new CEO, Jeff Stein, to lead its corporate reorganization. Rite Aid also planned to close 200 stores in 2024, but not before transferring customers' prescriptions to nearby pharmacies. It also gave its 45,000 employees the option to move to other stores “when possible.”
Bed bath and beyond
Many people thought Bed Bath & Beyond's days were numbered when it filed for Chapter 11 in April 2023; After all, it closed its 376 stores in the US and its shares were delisted from the over-the-counter market. This came after reporting a quarterly loss of $393 million and following several years of declining sales, competition from online home goods retailers like Wayfair and a tangled supply chain related to COVID-19.
Plus, who could forget the BBBY meme stock trading frenzy in January 2021, when Reddit contributors drove prices up 99%, only to crash back down? When the dust settled, Overstock bought the company for a special offer of $21.5 million in June 2023, then took its name and merged the companies.
Bed, Bath & Beyond now sells kitchen, bath, and furniture completely online and has added more than 600,000 new products to its inventory.
J Crew
J. Crew, the first major retailer to fail during the pandemic, filed for Chapter 11 in May 2020. But it wasn't just the fact that overall retail sales weakened at the start of COVID-19: the Department of Commerce reported a 50% decline. in sales in March 2020 alone: J. Crew had also been saddled with $1.7 billion (i.e. with ab) in long-term debt, weighing heavily on its balance sheet even as its operations were profitable.
The luxury lifestyle apparel seller received a $400 million line of credit from hedge fund Anchorage Capital Management, which became majority owner, and combined with additional loans from Davidson Kempner Capital Management LP and Bank of America , managed to convert its debt into capital, emerging from bankruptcy. procedures that August.
But J. Crew is not out of the woods. Since creative director Jenna Lyons left in 2017, it has yet to launch a clothing line that consumers want to pay full price for, and Standard & Poor's downgraded parent company Chinos Intermediate 2 LLC to “stable” to “negative” in The third quarter of 2023 set off alarms.
However, the preppy chain posted a 9% sales increase for its fiscal year ending Feb. 1, 2024, due in part to holiday sales, which slashed clothing prices by up to 75%. Paradoxically, J. Crew could now be one of the best stores to shop for discounts.
Justin Sullivan/Getty Images
JCPenney
You'd think that a company that survived two world wars and made a cameo in “Back to the Future” would stand the test of time, and it might as well be. Founded in 1902 by James Cash Penney as a dry goods store in Kemmerer, Wyoming, the chain expanded throughout the American West before introducing clothing to its line in the 1960s.
Penney's wisely ventured into the drugstore business, launching a mail-order catalog and offering customers the option to make purchases through credit, which paid off handsomely; It peaked in the 1970s with more than 2,000 stores worldwide. But after decades of declining sales, accumulating a huge amount of debt during the 2007-2008 financial crisis, and losing customers en masse to Target and Walmart (a familiar refrain), the COVID-19-related closure of Penney's remaining 800 stores in early 2020 seemed like the final nail in the old retailer's coffin.
JCPenney filed for Chapter 11 in May, only to emerge, phoenix-like, eight months later. The brand permanently closed 200 stores, restructured its $4 billion debt, and acquired two new owners—they turned out to be the country's largest mall owners, Simon Properties and Brookfield Asset Management—thus cementing Penney's place as a “ anchor” retail.
In 2021, Mark Rosen, formerly of Levi Strauss & Co., became CEO and in 2023 announced $1 billion in improvements to JCPenney's website and app, as well as renovations to its stores. physical. Here's the key: do it I would not do it require taking on more debt. “We're in a really strong financial position right now,” Rosen saying.
Images by AaronP/Bauer-Griffin/GC
guitar center
It's hard to believe that this mecca for rock n' roll musicians was originally called the Organ Center and sold church organs and small appliances. That all changed in 1964, shortly after The Beatles arrived in the United States, when one of owner Wayne Mitchell's suppliers told him that he needed to buy Vox amplifiers so he could continue buying organs.
Mitchell figured if he was selling amplifiers, why not sell some guitars too? They sold out quickly; Mitchell renamed his store and the rest is history. Capitalizing on the hair metal craze of the 1980s that glorified guitar virtuosos such as Eddie Van Halen, Guitar Center expanded to 30 locations in the 1990s. It also diversified its portfolio with acquisitions of Musician's Friend, a retail company. by mail of musical instruments; Music & Arts, which provided in-store music lessons; and in the early 2000s, he teamed up with video game giant Activision on his smash hit “Guitar Hero.”
But the good times and rock & roll didn't last forever. Over the next decade, Guitar Center underwent a series of leveraged buyouts by private equity firms, each time saddled with more debt. It tried to cut costs by stocking fewer well-known brands and laying off staff, many of whom had decades of experience that justified their salaries.
Customers noticed the changes and simply stopped coming and bought online. But just before the pandemic, Guitar Center made a comeback, posting 10 consecutive months of sales growth, but while finding new audiences for guitars and online lessons during the COVID-19 shutdown, Guitar Center faced the double whammy of being in debt. of one billion dollars. expired and the closure of its physical stores.
It entered Chapter 11 in November 2020, although its management team already had a strategy. He invested $165 million in the company and eliminated most of its debt. Guitar Center also issued $375 million in senior secured notes and emerged from Chapter 11 in December.
