Bankrupt US retailers begin to catch a break

NEW YORK/CHICAGO: An unexpected helping hand from creditors, landlords and vendors is allowing more US retailers to stay in business following bankruptcy with most of their stores and employees in the fold.

The new approach marks a turning point for the beleaguered sector, which has seen at least 19 brick-and-mortar retail chains shut down the bulk of their operations since 2014.

Until this year, most bankrupt retailers, including American Apparel, Sports Authority and The Limited, were dismantled during their bankruptcy process.

Investors and companies acquired their intellectual property and other assets, but refused to take on their business as a going concern because they saw little value in assuming costly store leases. Instead, they often opted to revamp some of the battered brands online.

However, several creditors, landlords and vendors now see more value left in some retailers, and are seizing on an opportunity to minimize their own losses in the retail rout.

This could spell a slowdown in the decline in brick-and-mortar retail jobs, which fell by more than 100,000 this year, as more than 6,000 stores shuttered under increasing pressure from competition among traditional retailers as well as e-commerce firms such as Amazon. com Inc.

“We’re seeing a set of situations come together in which the constituencies have more interest in the retailer surviving than not,” said Holly Etlin, a managing director at AlixPartners LLP, a consulting firm that worked on the bankruptcy of Gymboree.

Jeans company True Religion Apparel Inc and perfume whole-

We’re seeing a set of situations come together in which the constituencies have more interest in the retailer surviving than not. Holly Etlin, managing director at AlixPartners LLP

saler and retailer Perfumania Holdings Inc are set to emerge from bankruptcy with at least some of their stores in operation, according to interviews with bankruptcy attorneys and a Reuters review of financial information of more than 15 retailers shared with bankruptcy courts.

These chains will follow a path blazed by Payless ShoeSource, which in August emerged from bankruptcy while keeping more than 3,400 out of its 4,200 stores worldwide, and preserving 19,000 of its 22,000 employees.

Last month, teen clothing shop rue21 Inc and children’s apparel chain Gymboree Corp came out of bankruptcy in similar fashion, preserving much of their store footprints and employee headcount.

Most of these retailers were owned by private equity firms, which saddled them with debt in a risky bid to juice returns.

But in bankruptcy talks, the chains are arguing successfully that they can generate enough cash to withstand the sector’s woes if their debt mountains are slashed and payment obligations eased.

Creditors, landlords and vendors are more receptive to this approach, because their own financial projections show that liquidations would result in a limited recovery of what they are owed, according to interviews with debt investors and bankruptcy court filings.