On Monday, teen fashion and accessories retailer Rue21 filed for Chapter 1 bankruptcy protection on the heels of budget-conscious customers migrating towards fast-fashion competitors and more flexible online sellers. Obviously, this is nothing new to the traditional apparel industry, making Rue21, perhaps, just the latest to fall victim to savvy online buyers; and certainly not the last.
As such, the company has already made drastic efforts to restructure, starting with the closing of nearly 40 of its 1,179 stores across 48 states. Then, on Tuesday, the company warned, via court filing, it may need to shut even more locations in order to retain more liquidity. This, of course, will also affect the company’s 15,800 employees, the majority of which are part-time.
Regarding the restructuring effort, Rue21 CEO Melanie Cox comments, “Even in a challenging environment, we are fortunate that Rue21 has highly relevant brands, an enthusiastic and loyal customer base, and hundreds of highly performing stores. The agreement with our lenders represents their confidence in Rue21’s future success even at a time of significant retail industry change.”
You may be aware that Rue21 turned a $54 million profit back in 2016, if you measured before interest, depreciation, taxes, and amortization. But that was down nearly 50 percent from the year before even though revenue was up 1 percent, to $1.14 billion.
Founded more than 37 years ago, the Warrendale, Pa.-based retailer, reports that it needs the bankruptcy filing, in part, to reestablish standard deals with vendors which had started to demand cash upon delivery. This would cause the company to charge more, but with the company’s customer base averaging fewer than $35,000 in annual income, price sensitivity is of great import.
Reorg First Day distressed debt legal analyst, Jessic Steinhagen, assessed: “The retailer was pushed into bankruptcy because of supply chain challenges and the tightening of trade credit terms months ahead of the filing, but also points to the general downturn in the retail industry, which includes decreased sales and increased operating costs in light of the shift away from brick and mortar retail sales to online channels.”
In a court filing, Rue21 cited that the industry has experienced “an evolution of customer tastes” which has undermined its girls fashion products, a sector that represents 50 percent of its revenue. The filing continues, “At the same time, the retail industry in general has experienced significant headwinds, requiring traditional brick-and-mortar retailers to adapt to an increasingly digital-focused consumer. While the company’s online presence is expanding and improving, the company’s historic online platform was not as robust as that of certain of its competitors.”