Perfumania files for bankruptcy, plans to close stores
- Perfumania, a retail and wholesale company that bills itself as the largest fragrance retailer in the country, filed for Chapter 11 bankruptcy in federal court on Saturday. The company said in a press release that it planned to recapitalize and reduce its store count to “better align with current consumer shopping patterns,” “increase investments in its e-commerce business,” and to ultimately emerge as a private company.
- Perfumania President and CEO Michael Katz said in a statement that employees would receive salary as normal, wholesale and retail customers would not see any interruption to the “flow of merchandise,” and that “our valued vendors and suppliers will be paid in full.”
- Management has already identified stores that are “core to the company’s ongoing operations,” which will continue operating on emerging from bankruptcy. The Wall Street Journal reported that the company plans to close 64 of its existing 226 stores.
CEO Katz said Perfumania has been “working diligently to amend its business model, reduce its cost structure, improve supply chain efficiency, optimize marketing, reduce expenses and improve operating results long-term.” It has also been closing underperforming stores. In the first quarter of this year, the company closed 43 stores, according to Securities and Exchange Commission filings. The Ch. 11 filing is meant to accelerate those efforts, Katz said.
The retailer’s total debt, according to its bankruptcy filings, sits at $253.9 million. Meanwhile, sales have been declining — in fiscal 2016, they fell by 13.5% to $468.9 million compared to the prior-year period. Losses, too, have been widening, from 75 cents a share in 2015 to $1.53 a share last year. In its most recently reported quarter, Perfumania saw its amount of cash and cash equivalents fall by 76%.
In Ch. 11, the company hopes to not just reduce its expenses but transform into more of a digital retailer. “Looking forward, Perfumania will further emphasize and invest in its e-commerce business so as to improve customers’ online shopping experience,” Perfumania said in a release. “Moreover, the company will continue to look for ways to leverage digital technologies and believes that a greater focus on omnichannel initiatives will enhance and create a more seamless shopping experience for consumers.”
Perfumania executives have of late seen digital sales as playing a growing role in the sector’s future, but they also warned in Perfumania’s 2016 annual report that “[t]o increase our e-commerce sales, we may have to be more promotional to compete with our competitors, which could impact our gross margin and increase our marketing expenses.”
Perfumania is just the latest specialty retailer to seek Ch. 11 to both shed unprofitable stores and reshape itself to be more competitive in a changing retail industry. In June, teen apparel retailer Papaya Clothing filed with immediate plans to close 30 stores and hopes of restructuring its debt. The bankruptcy followed a period of rapid expansion, when it opened about 50 stores in the previous six years.
This year, Gymboree, rue21 and Payless, among others, have also filed for Ch. 11 with plans to shrink their footprints and hopes of re-emerging as smaller but more competitive and financially sound retailers.
Follow Ben Unglesbee on Twitter