Charming chain joins retail trend
Houston company files second bankruptcy, seeks to liquidate
Charming Charlie, a Houston retailer known for selling colorful women’s fashion accessories, is going out of business after filing its second bankruptcy in less than two years.
The company, which sought Chapter 11 bankruptcy protection in Delaware on Thursday, plans to close 261 stores nationwide, including nine in the Houston area. Rather than reorganize under Chapter 11, the company said it would liquidate the business, a process expected to be finished by Aug. 31. Some 3,342 full- and parttime employees nationwide will be affected.
The retailer in its bankruptcy filing reported outstanding debt of about $81.8 million, and cash on hand of about $6,000. The company said it tried to find more sources of financing and inventory to continue its operations, but realized this week that it could not.
“After an extensive evaluation, the Debtors and their advisers reached the difficult decision that the best way to maximize value for all stakeholders is to commence an orderly wind-down of Charming Charlie,” Chief Financial Officer Alvaro Bellon said in the bankruptcy filing.
Charming Charlie is the latest in a long list of brick-and-mortar retailers that have fallen victim to changing consumer preferences and the rise of e-commerce amid a fiercely competitive industry. The company joins Toys “R” Us, Payless ShoeSource and DressBarn in having gone out of business in re
cent years.
Retailers so far this year have announced 7,062 store closures nationally, surpassing the 5,864 closures reported in 2018, according to the latest Coresight Research store tracker report. The retail data firm forecasts U.S. store closures could hit 12,000 by the end of the year, a staggering figure that underscores the extent of the so-called “retail apocalypse.”
Rapid rise
Houston entrepreneur Charlie Chanaratsopon founded Charming Charlie in 2004, and quickly grew the company into a leading accessories retailer specializing in trendy and affordable jewelry, handbags, scarves, shoes, sunglasses, gifts and cosmetics — all arranged by color. By 2017, the retailer had more than 390 stores in the U.S., Canada, the Middle East and the Philippines. Its core customer base was women aged 35 to 55, the company said.
But its merchandising approach caused the retailer to be saddled with excess products in underperforming colors, which resulted in markdowns and lower margins. The company at one point offered products in as many as 26 different color hues.
In recent years, Charming Charlie struggled to maintain its large store footprint and global vendor network, as well as compete with the growing popularity of online shopping, which drew customers away from brick-and-mortar locations.
“The Debtors’ business is heavily dependent on physical consumer traffic, and resulting sales conversion, to meet sales and profitability targets,” Bellon said in the bankruptcy filing. “The continuing decline of physical consumer traffic, which has plagued the retail industry as a whole, contributed to the Debtors falling short of their sale targets and depressed profitability performance.”
Charming Charlie filed for its first bankruptcy in December 2017 and emerged in April 2018 with about 100 fewer stores. The retailer eliminated about half of its debt through the restructuring and started a “back to basics” operational overhaul; however, those “efforts were simply were not sufficient to stabilize the Debtors’ businesses and ensure long-term profitability,” the company said in its filing.
Critical missteps, including understaffing stores and stocking offtrend merchandise, bit into Charming Charlie’s bottom line. Severe weather, lower tax returns from the new federal tax overhaul and increased tariffs on Chinese goods delivered the final blow, Bellon said.
Winding down
Charming Charlie has obtained debtor-in-possession financing of $13 million from Massachusettsbased Second Avenue Capital Partners and New York-based White Oak Commercial Finance to fund its operations through the bankruptcy. The retailer expects liquidation sales will generate $30 million in revenue.
The 30 largest creditors listed in Charming Charlie’s filing were owed more than $14.6 million, and include New York-based Guggenheim Securities, Rhode Islandbased Tanya Creations and Maryland-based FTI Consulting, as well as several Chinese vendors.
Charming Charlie does not plan to offer severance to its employees after liquidation, but is seeking court approval to offer a one-time bonus for helping to close its stores.
“The Store Bonuses are purposed to mitigate flight risk by incentivizing and rewarding store employees for staying with the Debtors through the Store Closing process,” the company said in its filing.