Rue21 to shutter nearly 400 stores nationwide

Dive Brief:

  • Teen apparel retailer Rue21 will shut down about 400 stores nationwide, according to the Associated Press. Calling it a "difficult but necessary decision," the company confirmed it is "closing some stores" in a Facebook post over the weekend. 

  • The closures equal about one-third of Rue21's brick-and-mortar portfolio and will leave the retailer with about 700 remaining stores in the U.S., as well as its e-commerce website. 

  • There is no word yet on when the stores will close, but store closing sales have already started. It appears increasingly likely that the retailer is heading toward bankruptcy, especially after recently missing interest and amortization payments and the company struggles to find new lenders to restructure its debt.  

Dive Insight:

Death waits for no man — or retailer, for that matter. As e-commerce continues its gradual encroachment on brick-and-mortar store traffic and sales across the board, the most vulnerable retailers are on thin ice. Already this year we've seen several retailers — including fellow teen apparel retailer Wet Seal and women's apparel retailer The Limited — succumb to bankruptcy. The number of retailers who have filed for bankruptcy this year — 9 at last count at the end of March — has already equaled the total number of retail bankruptcies for 2016 and is on pace to for the highest year on record since the recession. 

Rue21 may soon be next in line as mall-based apparel retailers in particular struggle to deal with lower foot traffic to malls. "Way too much leverage and declining mall traffic trends are just the death knell," Debtwire Associate Editor Reshmi Basu told Retail Dive earlier this year, calling Rue21 a "poster child" for mall-based apparel retail.

A blunt Fitch Ratings report last fall singled out Rue21 as one of seven retailers with tenuous futures. "The lack of proprietary products in many categories leaves retailers vulnerable to permanent traffic decline resulting from the rise of competitors (for example, discounters and online-only players)," Fitch said, pointing out that mall-based apparel brands in particular can quickly become irrelevant as consumer sentiment changes. "The outcome in either case is that the bankrupt retailer has lost its place in the market and thus has limited value as a going concern." 

In January, Rue21 appeared in another Fitch report citing retailers most likely to default on their loans. Many lenders think the company can't take on any more debt, according to Basu. Factor firms are getting nervous and not approving shipments, though Debtwire noted in a recent report that management has said it continues to have factor support.

In recent years, Rue21 expanded its store footprint despite having negative same-store sales. "That can be pretty lethal," Basu said. However, she added there is a shred of light at the end of the tunnel for struggling mall-based retailers in renegotiating leases because landlords are under the gun as retailers shutter underperforming stores (or all stores).

To turn around its fortunes, the retailer plans to revamp its girls' in-store experience in alignment with the girls' merchandising transformation led by Chief Merchandising Officer Nina Barjesteh, who joined Rue21 from Target after the abrupt departure of Kim Reynolds in October 2016.

The retailer has been in the midst of a turnaround since an executive suite shake-up instituted last year by private equity owner Apax Partners shortly after credit ratings firm Fitch Ratings warned Rue21 could slip down the slope to bankruptcy. The company replaced Reynolds as well as CEO Bob Fisch, who together had run the company for some 15 years. Keith McDonough, who had been CFO for 13 years, has since served as interim CEO while the board of directors searches for a permanent chief executive.

Debtwire reported in early April that the company has signaled that same-store sales in already revamped stores have risen 6% with wider gross margins and lower inventory levels. But if the store closings are anything to go by, the executive shakeup and turnaround plan may have been too little too late for the struggling teen apparel retailer.

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