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Beyond Bankruptcy: How Failed Stores Come Back Online

Fashion brands are finding that there is life after liquidation—but only if they act fast… (scroll down to continue reading)

BCBG Max Azria, which filed for bankruptcy in February, this week completed the sale of its wholesale and e-commerce operations to Global Brands Group Holding. Photo: Richard B. Levine/Zuma Press

By

Erica E. Phillips and

Stephanie Gleason

Aug. 4, 2017 7:00 a.m. ET

Bankrupt fashion labels are finding that there is life after liquidation—but only if resurrection happens quickly.

Investors snapped up Wet Seal, American Apparel and The Limited, betting fickle consumers who long ago stopped visiting their shops would flock to new online-only storefronts.

Companies like Onestop Internet Inc., which handles orders for dozens of websites out of a warehouse in Compton, Calif., make it easier for former brick-and-mortar chains to transition to online-only fashion labels.

Selling apparel online can be less costly, according to Onestop. For a pair of premium jeans, for example, the cost of fulfillment operations, technology systems, shipping and free returns is less per item than brick-and-mortar costs including rent, payroll and distribution, the company says.

But a successful transition requires racing against the clock. A once-hot brand like American Apparel can fetch tens of millions of dollars in a bankruptcy auction, but its value quickly drops after stores close. New owners must rush to line up new designers and manufacturers, and set up distribution networks geared toward shipping to homes before shoppers move on. (scroll down to continue reading)

“There needs to be a sense of urgency,” said Ramez Toubassy, president of the brands division at Gordon Brothers Group, a retail investor and liquidator.

Gordon Brothers purchased Wet Seal for $3 million in March, the same month that the teen retailer sold its inventory and closed the last of its stores, and is now working to restart Wet Seal’s manufacturing. It aims to open an online store in the fall.

With so many retailers in decline, a handful of firms have emerged that specialize in transforming failed brick-and-mortar chains into online stores.

Private-equity firm Sycamore Partners in 2014 hired Newmine LLC to relaunch Coldwater Creek, a fashion brand that had closed that year but retained a following among middle-aged women. Clothes were available for sale online four months later after a “fast-paced, SWAT-team-like” effort, said Newmine Chief Executive Navjit Bhasin.

After a liquidation, “all that’s left is the brand name and the customer following,” Mr. Bhasin said. “If it takes 2½ years to revive, the customer is gone.”

Behind the scenes, logistics experts must ensure that the brand can deliver like an e-commerce outfit. That can mean transforming a legacy retailer’s warehouses—often set up to deliver large amounts of merchandise to stores—to more nimble operations where workers can pick out individual garments and pack them for shipping, then get them delivered quickly to customers’ homes. Arranging the fastest shipping methods and negotiating lower rates with United Parcel Service Inc. and FedEx Corp. is key.

Onestop will handle orders for BCBG Max Azria Group LLC, which filed for bankruptcy in February and this week completed the sale of its wholesale and e-commerce operations to Global Brands Group Holding Ltd. for $23 million. Marquee Brands LLC is paying $106 million for BCBG’s intellectual property assets.

Brand owners “need to extract the value of the intellectual property [but] they don’t want to have to worry about customer service, digital marketing and web developers,” said Daniel Brewster, a senior vice president at Onestop.

American Apparel’s new owners are planning the brand’s online-only future even as its liquidation is under way. Canadian T-shirt wholesaler Gildan Activewear Inc., which paid $88 million for the brand name and some manufacturing equipment, is aiming to relaunch American Apparel this summer—though the brand’s website currently is just a landing page.

Gildan opened an office in Los Angeles, hiring a few American Apparel marketers to keep the brand on “life support,” as Garry Bell, Gildan’s vice president of marketing and communications, put it. The company has already revived American Apparel’s wholesale business, lining up suppliers for a “Made in the USA” line and a less expensive one to be manufactured in South America.

“It’s really important for us to do that as quickly as we can,” Mr. Bell said.

Sycamore, which owns Coldwater Creek, paid $27 million for Limited Stores Co. after the retailer closed all 250 of its mall-based stores, temporarily shut down its online shop and filed for bankruptcy protection in January. A spokesman for Sycamore declined to comment, though the company said in February that it “plans to reintroduce the brand to the marketplace at a later date.”

Authentic Brands and Gordon Brothers teamed up with a pair of mall owners, Simon Property Group and General Growth Properties Inc., to invest $243.3 million to acquire Aéropostale Inc. after the brand filed for bankruptcy protection. The move will keep the brand available in more than 400 North American stores.

Other failing mall chains are still working out how to stay alive. Abercrombie & Fitch Co. tried to sell itself but those efforts recently stalled, leaving the apparel retailer to continue trying to right its business on its own. True Religion Apparel Inc. launched a bankruptcy turnaround effort in July, but says it plans to keep many stores up and running through the process.

Even a smooth relaunch is no guarantee of a comeback.

Linens ’n’ Things has passed between three owners since it filed for bankruptcy protection in 2008. The home-goods chain’s current owner, Sequential Brands, reported $155.5 million in revenue last year across all of its businesses, compared with $2.7 billion for Linens ‘n’ Things alone in 2005.

Systemax , a business-to-business electronics company, bought Circuit City’s assets in 2009 and folded it into its direct business before selling off the brand last year.

Companies that buy brands after liquidation often see moving online as a temporary fix.

Gordon Brothers’ Mr. Toubassy said he aims for Wet Seal to be sold in department stores. And Authentic Brands, which bought Juicy Couture for $195 million in 2013, sells the brand’s merchandise in department stores and boutiques as well as online.

“I don’t think that you can buy a brand today and just go strictly online,” said Jamie Salter, chief executive at Authentic Brands, which also owns lingerie seller Frederick’s of Hollywood. “When you can touch and feel the brand inside the stores, when you can see it, it gives it that heartbeat.”

Corrections & Amplifications Onestop Internet Inc. will start handling orders for BCBG Max Azria Group LLC in 2018. An earlier version of this article incorrectly said Onestop already was handling orders for BCBG.

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