Retail Bankruptcies of 2011

December 2011

In our December 2010 blog posts entitled Retail Bankruptcies of 2010 Part I and Part II, we discussed retail bankruptcy strategies and trends during 2010, including the increase in sales auctions and liquidations resulting from failed attempts to reduce overhead costs and right-size operations and the inability of retailers to restructure their debt. In this blog, we will provide an update on retail bankruptcy strategies and trends for the first 11 months of 2011.

During the first 11 months of the year, bankruptcy strategies and trends shifted towards an increased use of the bankruptcy process to reorganize and/or sell retailer assets to strategic and financial buyers—proof that businesses are committing to continue go-forward operations while fewer companies are liquidating. This is largely the result of an increase in the availability of financing and the willingness of strategic and financial buyers to take advantage of lower valuations and invest in businesses that can use the bankruptcy process to complete a sale and exit as a stronger and healthier company. Examples include Orchard Brands and Sbarro.

Through the bankruptcy process, Orchards Brands managed to eliminate approximately $420 million of debt, maintain operations and exit from Chapter 11 with the liquidity and capital to necessary to promote growth. Sbarro also earned approval of its plan to restructure and exit bankruptcy protection. The plan granted ownership of the company to senior lenders owed money (approximately $176 million) prior to the reorganization.

Other examples, as seen in the table above, include:

No Fear Retail Stores which emerged from Chapter 11 bankruptcy free of debt. New ownership by Ryderz Compound Inc. was also part of the agreement.

SSI Group Holding Corp. recently sold its Grandy’s and Souper Salad restaurant chains to two different buyers.  An affiliate of Sun Capital Partners Inc. bought Grandy’s for $6 million and LNC Ventures LLC bought the Souper Salad chain for around $4 million.

Friendly’s is in the process of selling its business to an affiliate of its current owner, Sun Capital Partners Inc. Following the receipt of a $70 million financing commitment, the restaurant chain expects to have the working capital necessary for a successful restructuring.

Despite this trend, some smaller retailers such as Anchor Blue, Robb & Stucky, and Metropark USA have succumbed to “big box” retailers who have the ability to offer deeper discounts and weather the storm through a continued sluggish economy, high unemployment rates and more thrifty spending habits.  For example, Anchor Blue filed for bankruptcy for the second time in January 2011 and closed all 117 stores of their stores. Robb & Stucky was unable to come up with a sustainable continuing business strategy, resulting in the bankruptcy court decision to sell the business to Hudson Capital Partners, a liquidation company, for $30 million.

What do you forecast for retail bankruptcies over the next few months and the upcoming year?