Tween retailer Claire's has identified over 1,100 U.S. stores for possible closing and warned it may be forced to liquidate after seeking bankruptcy protection a second time. It's yet another chain failing in its attempt to make a comeback after a prior Chapter 11 filing.
Hoffman Estates, Illinois-based Claire's, parent of its namesake locations and Icing, on Wednesday initiated voluntary bankruptcy proceedings in the U.S. Bankruptcy Court for the District of Delaware. It also plans to make a similar filing in Canada under the Companies' Creditors Arrangement Act in Ontario for its stores in that nation.
The retailer said it is entertaining offers for its assets, but if that effort fails it may have to shut down its entire store fleet. In court documents, Claire's said it retained Hilco Merchant Resources last month to immediately initiate store closing sales. Hilco's assignment is "to liquidate all or a portion of the United States and U.S. territory stores in the event a going-concern transaction is not achievable," according to Claire's.
Claire's, founded in 1961, sells jewelry, cosmetics and accessories and offers ear-piercing services primarily targeted to tweens, teens and young girls. Icing, which Claire's acquired in 1996, targets a slightly older demographic, young women. The retailer says it's pierced over 100 million ears since 1978 and has roughly 1,500 namesake and Icing stores in North America and store-in-store sites at Walmarts. It operates about 2,300 stores globally.
Like other ailing brick-and-mortar chains before it, Claire's blamed its financial woes on competition from online retailers; new rivals, in this case Lovisa, Rowan and Studs; changing consumer habits and a shift away from malls; the negative impact of tariffs on its goods from China; debt; underperforming stores; and burdensome lease obligations. Claire's is one of several retailers that in the past year or so filed for Chapter 11 for a second time. In the case of Party City and Forever 21, the end result was liquidation.
U.S. store closings continue to outpace openings this year. Year-to-date there have been 6,032 announced store closings compared to 4,260 announced store openings, according to Coresight Research.
Claire's court filings include a list of 1,119 stores, 1,018 Claire's and 101 Icing sites, for Hilco to conduct going-out-business sales. But Claire's isn't bound to that list, which could change depending, for example, on the potential divesture of assets. The list doesn't include any of Claire's 207 Walmart locations.
Claire's declined to comment on the store closings, and Hilco didn't respond to an email from CoStar News on Wednesday seeking comment.
The bankruptcy proceedings will enable Claire's "to immediately commence the monetization process for its assets," the retailer said in a statement. Claire's said it "is continuing an active and comprehensive review of strategic alternatives, including discussions with potential strategic partners that began" prior to the Chapter 11 filing.
"This decision is difficult, but a necessary one," Claire's CEO Chris Cramer said. "Increased competition, consumer spending trends and the ongoing shift away from brick-and-mortar retail, in combination with our current debt obligations and macroeconomic factors, necessitate this course of action for Claire's and its stakeholders."
Interested bidders
Claire's recently solicited bids for all or part of its operations as a going-concern or as a full-chain liquidation, Cramer said in an affidavit filed with the court. The retailer executed 60 confidentiality agreements and received multiple letters of intent. It's looking to convert one or more of the nonbinding letters of intent into binding commitments, according to Cramer.
Claire's will "stop the liquidation sales in the event of an actionable going-concern transaction and will continue to make every effort to effectuate such a transaction," he said.
Before filing for Chapter 11 this week, Claire's conducted an analysis of its brick-and-mortar footprint. Based on that review, Claire's determined it needed to exit about 700 nonviable or underperforming store locations, including all of its Icing and Walmart locations to focus on the remaining 800 stores, according to Cramer.
But court documents list 1,119 stores to potentially be shuttered, and 18 leases to be rejected.
Claire's annual occupancy cost for its U.S. and U.S. territory lease footprint is roughly $130 million, Cramer said.
The first time Claire's filed for Chapter 11 was in March 2018, where it sought to eliminate a substantial portion of its $1.9 billion in debt. It was acquired out of bankruptcy by creditors including Elliott Management and Monarch Alternative Capital.
"Claire’s was highly profitable in the years following emergence from its 2018 prearranged chapter 11 cases," Cramer said. "While the business experienced a temporary slump during the early months of the COVID pandemic, it quickly rebounded, offering a uniquely fun, colorful immersive, experiential, in-person shopping experience during a period marked by uncertainty, loss, and isolation for many individuals and families across the globe."
The chain "also amplified its online store presence, posting increased e-commerce sales," according to Cramer.
"Despite this momentum, Claire’s was not immune from the continued trend away from brick-and-mortar and more recent macroeconomic challenges, including higher interest rates, labor costs and, most recently, tariffs," he said. "While Claire’s took many steps over the last few years to address these and other challenges, it was not enough to overcome the obstacles.
‘Cocktail of problems’
Neil Saunders, a retail analyst and managing director at analytics firm GlobalData, in a note Wednesday said Claire's faces tough challenges.
"The bankruptcy of Claire’s comes as no real surprise," he said. "The chain has been swamped by a cocktail of problems, both internal and external, that made it impossible to stay afloat. Internally, high-debt levels have made operations very unstable. Claire’s has struggled to simultaneously manage its debts and service day-to-day operations. The prospects of it being able to pay loans as they become due are extremely slim. This cash crunch left it with little choice but to reorganize through bankruptcy."
In addition, Claire's is under pressure from external factors, according to Saunders.
"Most recently, tariffs have pushed costs higher, and Claire’s is not in a position to manage this effectively," he said. "Amazon and other online players have also turned the screw, especially as visits to some secondary malls where Claire’s is present have waned. There is likely a place for Claire’s, but it will need to use bankruptcy to slim down, shed debt, and shutter weaker stores. Reinventing will be a tall order in the present environment."
Claire's declined to comment on Saunders' remarks.
For the record
Kirkland & Ellis is serving as legal counsel, Houlihan Lokey is serving as investment banker and Alvarez & Marsal is serving as restructuring adviser to Claire's. Osler, Hoskin & Harcourt is serving as Canadian legal counsel.