Rue21 seeks bankruptcy protection

More store closings possible in restructuring, troubled Cranberry clothing company says

In the latest casualty in the flailing brick-and-mortar space, Cranberry-based teen clothing retailer rue21 Inc. filed for Chapter 11 bankruptcy reorganization late Monday.

The company said the filing in the U.S. Bankruptcy Court for the Western District of Pennsylvania comes with agreements with some of its lenders to reduce its debt and provide capital in support of its restructuring.

Last month, rue21 had announced on Facebook that it would begin closing about 400 stores in its chain of more than 1,100 stores in 48 states. The move included six in the Pittsburgh region.

But those might not be the last of rue21’s stores to go dark. The company said in a statement that it “may evaluate additional store closings as it continues to manage its real estate lease portfolio.”

Like many retailers, especially those relying on traditional malls for traffic, rue21 has been hit by changing shopping habits as more purchases migrate to online stores, as well as dealing with evolving consumer tastes.

“The restructuring is an important step forward in rue21’s ongoing business transformation into a more focused and highly performing retailer,” the company said.

In April, Debtwire reported that rue21 was missing payments.

“It was kind of surprising how quickly this unfolded,” said Reshmi Basu, associate editor for Debtwire, on Tuesday.

“It became a story of too much leverage, which you can’t really absorb in this environment,” Ms. Basu said.

Fitch Ratings noted that competition from fast fashion and shifts in teen spending habits contributed to rue21's bankruptcy filing, as well as those of previous retailers that went that route.

“Bankruptcies of other leveraged apparel retailers during the past two years, including The Wet Seal, Aeropostale, Quiksilver, Pacific Sunwear and American Apparel, reflected similar challenges,” the firm said Tuesday.

“Rue21 has operated with high leverage since a buyout by the private equity firm Apax Partners in 2013,” Fitch noted.

Rue21’s announcement indicated it expects to emerge from bankruptcy in the fall with less debt, as part of its restructuring plan. The plan, which would need to be approved by the court, calls for providing up to $175 million in debtor-in-possession financing from various lenders.

That, the company said, will allow operations to continue, including paying vendors, employees and honoring programs such as gift cards.

“Even in a challenging environment, we are fortunate that rue21 has highly relevant brands, an enthusiastic and loyal customer base, and hundreds of highly performing stores,” said Melanie Cox, CEO, in the announcement. “The agreement with our lenders represents their confidence in rue21’s future success even at a time of significant retail industry change.”

Stephanie Ritenbaugh: sritenbaugh@post-gazette. or 412-263-4910.