UPDATE: November 26, 2019: Plus-size apparel retailer Avenue will convert its Chapter 11 case to a Chapter 7 liquidation, according to a Nov. 22 filing with the United States Bankruptcy Court for the District of Delaware.
Dive Brief:
- Avenue Stores filed for Chapter 11 late on Friday, outlining its plans to close its physical retail footprint and sell its e-commerce business in bankruptcy.
- All remaining 222 stores are expected to close by the end of September, the plus-size women's apparel retailer said in a press release. Avenue previously opted to liquidate and started the going-out-of-business sales before publicly announcing its plans.
- To fund it through the Chapter 11 process, Avenue has a commitment of $11 million for debtor-in-possession financing from the retailer's primary lender (PNC Bank), Avenue said.
Dive Insight:
Avenue was formed more than 30 years ago from the spin-off of Limited Brands' combined Lerner Woman and Sizes Unlimited units. The new business, named United Retail Group, went through an initial public offering (in 1992), an acquisition (2007) by Redcats USA and a previous bankruptcy (2012).
Private equity firm Versa Capital Management bought the retailer out of bankruptcy. Avenue CFO David Rhoads said in court papers that initiatives that followed the company's exit from bankruptcy — including new customer management software, improvements to the retailers buy online, pick up in-store process, and an e-commerce expansion — led to five profitable years of operations.
But Rhoads invoked a litany of challenges since then. He pointed to "an extremely competitive retail environment," that including not only other specialists like Lane Bryant, Torrid and Ashley Stewart but also mass merchants like Walmart and Target as well as a "recent influx of many other iconic fashion retail brands" expanding into the plus-size space. Avenue also had recent fashion misses, including placing "too much emphasis on fashion basics," Roads said.
Add to that high lease costs, declining mall traffic, increased online shopping, frantic discounting in the apparel space and data that Rhoads said showed Avenue's customers were shopping less frequently — with key holidays like Mother's Day falling short of projections — and the company buckled under its capital structure. For the first five months of 2019, Avenue made sales of $75.3 million but had negative earnings of $886,000.
In late July, PNC notified Avenue that it was in default on its asset-backed loan agreement and started sweeping cash out of the retailer's accounts with the bank to make payments on its loan facility, Rhoads said. At the time of filing, Avenue owed more than $53 million on its ABL and a subordinated note, as well as another $25 million in other unsecured debt, including money owed to landlords.
As Avenue's financial picture darkened this year, the retailer brought in consultants to review its options. After closing an initial round of stores and a distribution center in July, the retailer opted to shut down its physical stores while selling off its e-commerce operations. On Aug. 9, it quietly held an auction for liquidators interested in running the closing sales for its stores.
Store employees apparently had no idea the company they worked for was preparing to shut down its physical footprint. According to Retail Dive reporting, Avenue staff were told in an Aug. 9 conference call that the company planned to close its stores. Those who spoke with Retail Dive said the notice came as a surprise. Nor did Avenue indicate to its customers that it was liquidating its stores, until its liquidators issued a press release the day after Retail Dive published a story about the wind-down of its stores.
As the stores close, Avenue is readying for the sale of its e-commerce unit (consisting of Avenue.com and Loralette.com), which Rhoads said generates 36% of the company's sales and was relatively strong compared to its store operations.
