Strategy

Retailer Rue21 Takes Road to Bankruptcy

The company cited retailing's "significant headwinds" and "an evolution of customer tastes" in its Chapter 11 filing.
Matthew HellerMay 16, 2017
Retailer Rue21 Takes Road to Bankruptcy

Rue21 has become the latest retailer to file for bankruptcy protection, citing changing fashion tastes and the “significant headwinds” facing the industry.

The Pittsburgh-based fashion and accessories retailer had already begun closing nearly 400 of its 1,179 stores before it filed a Chapter 11 petition Tuesday aimed at reducing its debt burden.

In a statement, Rue21 said it had struck a deal with lenders for $125 million in debtor-in-possession financing, along with a term loan of as much as $50 million.

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“These actions are being undertaken with the goal of strengthening the company’s balance sheet, achieving a more efficient cost structure and concentrating resources on a tighter retail footprint in order to pave the best path forward for Rue21,” chief executive Melanie Cox said.

According to Fitch Ratings,  the Rue21 filing has boosted the U.S. retail loan default rate to 1.7% from 0.9%. Operators of brick-and-mortar stores have been hit by declining traffic as consumers shift to online shopping and fast-fashion competitors.

Rue21’s unadjusted profit fell 48.5% to $54 million in 2016, while revenue rose 1% to $1.14 billion.

“The retail industry in general has experienced significant headwinds, requiring traditional brick-and-mortar retailers to adapt to an increasingly digital-focused consumer,” the company said in a court filing. “While the company’s online presence is expanding and improving, the company’s historic online platform was not as robust as that of certain of its competitors.”

It also said “an evolution of customer tastes” had undermined its girls fashion products, which represented 50% of revenue in 2016, down from 54% a year earlier.

USA Today noted that Rue21 is not bleeding cash and had secured support for its debt-cutting plan from multiple key creditors, suggesting it “may avoid liquidation, a fate that has recently befallen mall clothing store chains Bebe, The Limited and Wet Seal.”

“The retailer was pushed into bankruptcy because of supply chain challenges and the tightening of trade credit terms months ahead of the filing,” Reorg First Day analyst Jessica Steinhagen said.