2020 has witnessed several retailers, mainly from apparel and fashion sector, go bankrupt, with several on the verge of filing for Chapter 1 protection from creditors.
There’s not an iota of doubt that bankruptcy and liquidation have become some of the most dreaded words of 2020. But is it really something to fear about? Do they mean an end to business?
Actually they don’t! Any retailer that files for Chapter 11 of US Bankruptcy Code actually gets an opportunity to restructure it and renegotiate with creditors. Yes, bankruptcy sometimes does end in liquidation as well, but mostly it helps the retailer rebuild, survive and finally succeed. Isn’t that every retailer wants?
Chapter 11 filings also brings in several buyers who make bids to buy these struggling retailers, understanding the value the business can bring for them in long term. Many retailers have gained from this and two prime examples are that of JCPenney and Brooks Brothers.
JCPenney is moving ahead with the sale of its business and has ruled out liquidation. In fact, as per reports there are 3 bidders who are putting efforts to acquire the American fashion retailer.
The potential 3 bidders are Sycamore, Hudson’s Bay Company and Simon Property Group and Brookfield Property Partners. Notably, Authentic Brands Group (ABG) has also been reportedly showing interest in buying JCPenney.
Then there’s Brooks Brothers, which received US $ 75 million funding alongside its filing last month and soon saw WHP Global and Sparc LLC compete to buy the American retailer. Sparc, which is a partnership between ABG and Simon Property Group, recently announced a US $ 305 million stalking-horse bid for Brooks Brothers. A series of court hearings is scheduled to begin today (3 August), with final offers due by 5 August. The retailers also by now know that doors are always open.
Meanwhile, ABG and Simon Property Group have stated their intent to put a bid of US $ 191 million to buy another bankrupt fashion brand Lucky Brand.
While there were 16 and 17 US bankruptcy filings in 2018 and 2019, respectively, the number rose to 25 in 2020. Considering massive store closures, extended lockdowns and increasing reluctance among consumers to visit stores (even after reopening), it’s not surprising to see such numbers.
Yes, there will be more Chapter 11 filings in the months to come, but the good thing is that lot of buyers too are coming forward to merge or acquire these struggling retailers with more store network and less load of debt.
With 5 months still to go, there will be more bankruptcy filings, but then there will be more mergers and acquisitions and importantly more ways to survival and success.