More retailers seek Chapter 11 redo — but few survive

Bankruptcies aren’t turning out better the second time around for many retailers.

A flurry of U.S. chains have returned to court recently to file for Chapter 11 reorganization within just a few years after first seeking bankruptcy protection. In August, tween retailer and mall staple Claire’s filed a second time. While it has found a buyer for up to nearly 1,000 of its stores, it will still be closing hundreds of its locations. And it’s not alone.

Joann, Rite Aid, Forever 21, Party City and Tuesday Morning are among the retailers that have filed for Chapter 11 twice. Rue21 and Z Gallerie sought bankruptcy protection three times. Six of those chains went out of business and closed all their stores. One is attempting a comeback under new owners.

There’s been similar activity in the dining sector. Bravo Brio Restaurants, parent of the Bravo! Italian Kitchen and Brio Italian Grille chains, filed for Chapter 11 bankruptcy Aug. 18 — its second time since 2020. Bar Louie sought bankruptcy protection for a second time earlier this year, and Bertucci’s filed for its third time since 2018.

Multiple retail Chapter 11 filings have become so common they even have a nickname — Chapter 22 — playing off the corresponding portion of the U.S. Bankruptcy Code.

“It is very much an interesting trend that we are seeing,” said Sarah Foss, global head of legal at Debtwire, a financial information provider. “Especially in the last couple of years, a number of well-known retailers, retail chains are filing for bankruptcy a second [time] — which is what we call Chapter 22 — or even a third time, which we call Chapter 33. ... It’s just something that people colloquially say — Chapter 22, Chapter 33.”

This year through Aug. 27, there have been 24 U.S. retail bankruptcies overall, compared with 51 tracked in calendar year 2024, according to Coresight Research.

Companies turn to bankruptcy as a way to financially restructure, reduce debt, address operational problems, cut costs on expenses such as rent and devise a successful going-forward strategy. But when a retailer’s first effort at Chapter 11 fails, several industry professionals told CoStar News, the second bankruptcy often ends in that chain liquidating and closing its brick-and-mortar locations.

Of 10 U.S. retailers that sought bankruptcy protection for a second time within a 10-year-span, Debtwire found, only four of the chains still have stores open — True Religion, David’s Bridal, Rue21 and Claire’s.

“Statistically, when a company files a second time around, it usually — more likely than not — it’ll be a liquidation,” said Bradford Sandler, a veteran bankruptcy attorney whose résumé includes work on the Bed Bath & Beyond, Party City and David’s Bridal Chapter 11 cases.

There are myriad reasons why retailers are forced to file for Chapter 11 twice and don’t successfully emerge on the second try. In some instances, they were still weighed down by too much debt. Or they didn’t close enough stores to sufficiently slash their costs. Or the mall traffic they once depended on is down as shopping habits change. And in other cases, their attempts at a comeback are derailed by new competitors. In the end, companies that liquidate remained overwhelmed by their problems with debt, operations and costs.

“Sometimes people like to try to find the common denominator [for second bankruptcy filings], and there’s just a lot of parts to the common denominator,” said Andy Graiser, co-president of advisory firm A&G Real Estate Partners. “At the end of the day, it still comes down to the company just wasn’t able to restructure the business the way they needed to — and then a lot of times, just didn’t have the liquidity to do it.”

David Swartz, a senior equity analyst at Morningstar Research Services, had his own explanation for a retailer’s repeat Chapter 11 filing.

“There’s a reason why it went bankrupt the first time,” Swartz said. “And whatever strategic moves that were made between that time and the second filing didn’t work. It’s not easy to fix a retailer. It takes years and significant investment. And even then, there’s no guarantee that that’ll actually happen.”

Retailers that survive Chapter 22 succeed by emerging leaner, cleaning up their balance sheets, trimming their store fleets and streamlining their operations, according to industry experts.

Debt is one of the biggest slayers of retailers, according to industry analysts like Swartz.

“The No. 1 reason why retailers file for bankruptcy is debt,” he said. “Even a struggling retailer can keep going for a long time if it’s not burdened with significant debt obligations. However, a lot of times they are. ... Now going through bankruptcy the first time, it should alleviate that problem. ... But it doesn’t necessarily eliminate all obligations.”

Graiser added that “sometimes, you’re coming out of bankruptcy and you’re not really well funded. ... Sometimes they come out on a shoestring."

In some cases, a retailer may have been able to bolster its flawed operation with low-interest debt in its first Chapter 11, but it never solved its problems and that debt may be coming due — or refinancing it means a much higher interest rate, industry analysts said.

And while chains can manage to reduce their debt somewhat, in some cases it turns out not to be enough to save the day.

“At the time of filing, Claire’s had $691 million in debt. ... Joann had $616 million,” Neil Saunders, a retail analyst and managing director at analytics firm GlobalData, posted on LinkedIn. “And these are only the secured debts, the total liabilities are even higher. High debt is a destabilizer. It makes retailers far more fragile and far less able to withstand shocks like tariffs. It can also reflect underlying problems with the business, or a propensity to play financial games rather than focusing on day-to-day trading.”

According to Graiser, “sometimes you get these situations where you’re almost running the business just to pay down the debt, not putting your money in to restructure the business.”

In response to Saunders’ comments, a Claire’s spokesman said the retailer has taken actions to improve its business operations and to address the debt on its balance sheet. The private equity firm Ames Watson is acquiring up to 950 of Claire’s stores and will operate them, keeping the chain alive in the wake of its second Chapter 11 filing.

Joann, the national retailer of fabric and craft supplies, decided earlier this year to wind down its business and close all of its nearly 800 stores in 49 states. Its leases were put on the block. Joann didn’t respond to an email from CoStar News seeking a comment.

Sandler described bankruptcy as “a very powerful tool,” but one of last resort, for a retailer to reorganize its capital structure and address operational challenges. As part of that process, Chapter 11 lets retailers legally reject unexpired leases, affording them a chance to downsize and optimize their store portfolios or to renegotiate deals at better terms.

But some retailers don’t close enough stores in their first Chapter 11 go-round, several industry analysts said.

“Even after coming out of bankruptcy, if the retailer operates a lot of stores, that essentially acts as debt,” Swartz said. “Those are obligations that still need to be paid even if the company is not performing well.”

One of Party City’s problems mounting a turnaround after its first bankruptcy in January 2023 was that it shuttered only about 40 of its 775 stores, according to Graiser, whose firm has conducted store-lease auctions for not only the party-goods seller but also Big Lots, Joann and Rite Aid. Retailers can be loathe to close many stores because they don’t want to diminish distribution for their merchandise, Graiser said.

Party City didn’t respond to an email from CoStar News seeking a comment.

Maybe 10% of a chain’s stores are losing money, and “they’re the easy ones to get rid of,” said Sandler, but a chain may not have closed enough of what he called “bubble” stores.

“It’s the ones that are either slightly positive or slightly negative; they’re the ones that really require an analysis to see how are they trending,” he said.

In their first Chapter 11 filings, some retailers end up being acquired by their lenders that don’t necessarily want to fund comebacks, according to several industry analysts.

“Sometimes the lenders just say, ‘Enough is enough,’” Graiser said.

Retailers may emerge from their first bankruptcy with a strategy, but the new owners “are unwilling to put in the money into the business that it would actually take to change the business enough to make it healthy again,” Swartz said.

In some initial bankruptcies by retailers, a chain will swap out debt for equity in the company, Foss said.

“So your lenders, your private equity funds, end up owning a company after the first bankruptcy,” she said. “They’re in this for a lot of money, and they’re deciding, ‘Hey, this business just can’t continue.’”

When a vendor, typically a manufacturer or distributor supplying products to sell, is owed money during a retailer’s first bankruptcy or in advance of the second filing, they can be reluctant to do business with that chain. That can derail any comeback by the chain, according to industry analysts.

“When the vendors lose money, they’re not apt to go down that path again,” Graiser said.

When suppliers stop sending goods, or change the terms of how quickly they must be paid, it starts a snowball effect that contributes to a retailer’s demise, according to Al Williams, co-head of North American Real Estate for Gordon Brothers, and others. It’s hard to generate cash flow when a store doesn’t have inventory to sell.

“One of the key things that causes retailers to go under is that their vendors will not sell to them anymore,” Swartz said. “That’s what happened with Bed Bath & Beyond. That’s what happened with Sears. In their dying days, they didn’t even have stuff to sell because nobody would sell them anything anymore because they knew that they probably wouldn’t get paid. I’m sure that’s certainly the case for any retailer that’s already filed for bankruptcy once, because they’ve already probably burned those people.”

In Rite Aid’s case, it was unable to fully restock the retail areas of its pharmacies with holiday merchandise or cold and flu medicine during the winter season, according to bankruptcy court documents.

“In other words, the company became trapped in a vicious cycle, where tightening liquidity led to empty store shelves, and vice versa,” Marc Liebman, Rite Aid’s chief restructuring officer, said in an affidavit.

Rite Aid didn’t respond to an email from CoStar News seeking comment.

Some retailers end up facing a very different and more challenging competitive landscape after emerging from their first Chapter 11. Rivals, such as behemoths Walmart and Amazon, become much bigger and stronger, undercutting them on price and offering a wider array of products. Or plucky startup companies can grab market share.

Claire’s once had a virtual stranglehold on ear piercing. But in its bankruptcy filing, the retailer cited new stiff competition from Lovisa, Rowan, Studs, Ulta Beauty and Five Below for piercings, and from Five Below, Shein, Temu and Ulta for products.

“These competitive challenges confronted a low-price, volume-reliant business ... and one carrying significant debt ... even after its prior bankruptcy,” retail analytics firm Coresight Research said in a recent report.

“We have previously pointed to the threats to incumbent brick-and-mortar retailers from changing shopping habits and rapidly growing competitors, and consequent likely impacts on retail real estate this year,” Coresight said.

Longtime mall staples such as Claire’s and Forever 21 have blamed the rise of online shopping with cutting down traffic in those enclosed shopping venues — and hurting their sales. In addition, fashion trends for younger shoppers are starting on social media platforms TikTok and Instagram, not stores, according to Foss.

“When you’re talking about Claire’s, you’re talking about teens and tweens, a trend-driven, finicky group of people who aren’t finding their trends at Claire’s,” she said. “They're looking online. They’re looking at Instagram. They’re not looking in the Claire’s store window like they once were. So it’s just very tough for these brick-and-mortar retailers with these large overhead expenses — the shop, the employees and the store footprint and leases — to compete.”

And trying to make a move to more online selling was problematic for Claire’s. In an affidavit, CEO Chris Cramer said the retailer’s business was not conducive to a large-scale transition to e-commerce for the long run.

“The majority of the company’s customers are young individuals who do not themselves have access to funds, credit cards, or the ability to shop online,” he said.