We figured we'd take the first crack at the First Day Declaration for Forever21 Inc.'s potential bankruptcy* and spare the company some professional fees.
"Preliminary Statement in Support of Forever21's Chapter 11 Petition"
As you know, retail sucks. The list of bankrupted retailers is long and “iconic” and so we got FOMO and decided, what the heck! Everyone’s failing, so we might as well also!
But first, we did want to make sure that we could explain to our uber-loyal fanbase (who clearly isn’t buying enough of our sh*t) that we did everything in our power to stay out of bankruptcy court. And so we did what all retailers today do: we focused on omni-channel; upped our Insta spend; updated the lighting in our stores and refurbished our “look”; stretched our vendors; sh*tcanned some employees; negotiated extensively with our landlords; closed a few underperforming locations; negotiated with our lenders, and more! According to Bloomberg, we’ve hired Latham & Watkins LLP to deal with this hot mess, including our $500mm asset-backed loan. We’ve been busy bees!!
We had one Hail Mary trick up our sleeves that we thought would really save the business: partnerships. With first class brands. Like Cheetos. That’s right Cheetos!! GET PUMPED!!! Everything is so 🔥🔥🔥.
This sh*t got ~45k likes (“worst things since the Kardashians!” haha). Which pales compared to this doozy, which got ~47k likes:
“This is the most ridiculous clothing line I’ve ever seen.”
Nothing drives sales sales sales like thoughts of “ball cheese” (PETITION Note: sorry…we had to). #Fail.
But, wait! There’s more. We brought back Baby Phat too!!
May G-d have mercy on all of us.
*Sources tell us that the company may not be as close to a bankruptcy filing as some previous media reporting implied. Nevertheless, the name has been kicking around for some time now within the lender community and it does appear that the company is focused on some operational fixes. This “mock” first day declaration should not be construed as indicating that a bankruptcy is, in fact, imminent.
The retail bloodbath continues.
Earlier this week, Abercrombie & Fitch Co. ($ANF) joined Ralph Lauren Corp. ($RL), Gap Inc. ($GPS), and Calvin Klein ($PVH) by ditching “flagship” stores situated in expensive parts of town. The stock got crushed on earnings. But the “Peace Out Flagship Square Footage” club didn’t stop growing there. To the contrary, it is expanding. Rapidly.
On Wednesday, J. Crew announced that it plans to shutter 20 flagship and outlet stores. “Why might it be trying to shrink its footprint,” you ask? Good question. And the comps give you all the answers you need. While total revenue rose 7% across the enterprise, J.Crew sales fell 4% with comps down 1%. In contrast, Madewell sales rose 15% and comps rose 10%.
WANT TO READ THE REST OF OUR INSIGHTS? CLICK HERE TO SUBSCRIBE TO OUR KICK@$$ PREMIUM NEWSLETTER, AND YOU WILL READ ALL OF THAT AND MORE.
In “Thanos Snaps, Retail Disappears👿,“ “Even Captain America Can’t Bring Back This Much Retail (Long Continued Closures)“ and “💸The #Retailapocalypse is a Boon for...💸,” we’ve chronicled the seemingly endless volume of retail store closures that continue to persist in the first half of 2019. As we’ve said time and time again, there are no signs of this trend disappearing. In fact, it continues to get worse.
Last week brought us a deluge of retail news and earnings. And, indeed, along with earnings came more store closure announcements and more indications of who are the “haves”* and the “have nots.”
Let’s start with department stores where there’s a lot of pain to go around in “have not”-ville.
Macy’s ($M) kicked things off with a surprise increase in same-store sales and so it was ONLY down approximately 0.9% on the week. In contrast, Kohl’s ($KSS), Dillard’s ($DDS), J.C. Penney ($JCP) and Nordstrom ($NWN) all got hammered — each down more than 7% — after across-the-board dismal earnings. Kohl’s performance was particularly interesting given its acclaimed experimentation, including partnerships with Amazon ($AMZN) and, coming soon, Fanatics. The company reported a 2.9% revenue decline and a same-store comp decline of 3.4%. Adding fuel to the fire: the company cut its full-year earnings guidance, citing…wait for it…tariffs(!) as a massive headwind.
Kohl’s wasn’t alone there. Home Depot ($HD) also indicated that new tariffs on China might cost it $1b in revenue — on top of the $1b it already anticipated from the prior round of tariffs. 😬
Other have nots in retail? Party City ($PRTY) is closing 45 stores. Tuesday Morning Corp. ($TUES) is closing a net 12 stores. Fred’s ($FRED) announced 104 more closures in addition to the 159 previously announced closures. Burberry Group Plc ($BURBY) is closing 38 stores. Topshop is now bankrupt and will close 11 stores in the US (and more abroad). Hibbett Sports ($HIBB) is adding 95 store closures to the pile (despite otherwise nice results). Of course, we’d be remiss if we didn’t mention the dumpster fire that is Dressbarn:
Finally, all of the pain in retail already has at least one ratings agency questioning whether David’s Bridal is out of the woods post-bankruptcy. We can’t wait to add that one to our “Do We have a Feasibility Problem?” series.
Here is to hoping that Generation Z saves malls. What draws them to malls? Good food. Malls with great food options apparently experience more sales. Now Neiman Marcus and H&M are going the resale route. Urban Outfitters ($URBN) is experimenting with a monthly rental service. Startups like Joymode look to benefit from the alleged shift from ownership to “access.”
As for continued bleeding, here is yet another sign that things may continue to worsen for retail:
Notably, production of containerboard — a type of paperboard specially manufactured for the production of corrugated board (or cardboard) — is suffering a YOY production decline. Is that indicative of a dip in e-commerce sales to boot? 😬
*On the flip side, there have been some clear winning “haves.” Take, TJX Companies Inc. ($TJX), for instance. The owner of T.J. Maxx reported a 5% increase in same store sales. Target Inc. ($TGT) and Walmart Inc. ($WMT) also appear to be holding their own. The former’s stock had a meaningful pop this week on solid earnings.
The #RetailApocalypse is More Than Amazon Inc.
In September 2017 in “Minimalistic Consumption by Inheritance,” we wrote:
Much has been made about the death of retail and the "Amazon Effect." We mention it quite a bit … but we are also on record as calling the Amazon narrative lazy. After all, there's a reason why resale apps are among the highest downloaded apps in the Itunes app store. We've noted this before: millennials have no problem buying, reselling, buying, and reselling. I mean, sh*t, we're now seeing commercials for OfferUp on television. We've noted the rise of Poshmark and other apps here and here. Perhaps there's more here than meets the eye.
…the resale market is on pace to reach $41 billion by 2022 and 49% of that is in apparel. Moreover, resale is growing 24x more than overall apparel retail. “[O]ne in three women shopped secondhand last year.” 40% of 18-24 year olds shopped resale in 2017. Those stats are bananas. This comment is illustrative of the transformation taking hold today,
“The modern consumer now has a choice between shopping traditional retail or trying new, innovative business models. New apparel experiences and brands are emerging at record rates to replace old ones. Rental, subscription, resale, direct-to-consumer, and more. The closet of the future is going to look very different from the closet of today. When you get that perfectly curated assortment from Stitch Fix, or subscribe to Rent the Runway’s everyday service, or find that killer handbag on thredUP you never could have afforded new, you start realizing how much your preferences and behavior is changing.”
Finally, we wrote in January — in “ Retail May Get Marie Kondo'd ,” — that the Force is now strong(er) with the resale trend.
…The RealReal is signaling that resale is so big that it’s ready to IPO. Talk about opportunistic. No better time to do this than during Kondo-mania. The company has raised $115mm in venture capital … most recently at a $745mm valuation.
None of this is a positive for the likes of J.C. Penney. They need consumers to consume and clutter. Not declutter. Not go resale shopping. We can’t wait to see who is first to mention Marie Kondo as a headwind in a quarterly earnings report. Similarly, we wonder how long until we see a Marie Kondo mention in a chapter 11 “First Day Declaration.”
So, where are we going with all of this?
TO READ THE REMAINDER OF THIS CONTENT, SUBSCRIBE HERE. YOUR INFORMATIONAL EDGE IS JUST ON THE OTHER SIDE OF THAT LINK.