The retail world has faced significant challenges in recent years as a lot of retail brands are folding up. In may of this year, another well-known clothing store chain, Rue21, filed for a Chapter 11 bankruptcy protection. The company, which was once a major clothing brand in malls across the U.S., announced its decision to liquidate and close all of its stores, marking the end of an era for the brand. Rue21’s financial struggles is the reason for its latest bankruptcy filing. This marks the brand’s third attempt to reorganize and stay afloat.
Why are so many clothing brands filing for chapter 11 Bankruptcy?
Over time, many things have changed especially due to the present economic situation. Additionally, after the global pandemic that is COVID-19, a lot of changes have occurred some of which have had adverse effects on brands. In regard to the clothing brands, the stores were closed, there was a disruption in the supply of goods, and walk in shopping was no longer the norm, resulting in many clothing brands closing down due to lack of sales.
Brands such as Brooks Brothers, J.C. Penney, and Neiman Marcus have, over the past few years filed for Chapter 11 voluntary bankruptcy. Even classic powerhouses of the retail industry such as Men’s Wearhouse, New York & Company, and J. Crew also had some of its stores closed whilst restructuring and retrategizing to stay afloat.
There were also non pandemic related factors such as rising costs of raw materials, labour, and low appeal for office wearing attire. The jump in cotton prices in 2022 also financially squeezed a lot of retailers leaving some of these brands with no other option but to file for chapter 11 bankruptcy. An example of a clothing brand that recently made such filings is Rue 21.
What led to Rue21’s Bankruptcy filing?
Rue21’s most recent Chapter 11 filing in May 2024 is because the brand has been struggling to stay afloat in recent years. The company managed to survive its first two bankruptcy filings in 2003 and 2017, the brand was unable to overcome its mounting debt this time around.
The teen clothing brand has accumulated approximately $194.4 million in debt, and efforts made by the company to find a buyer for the business have been unsuccessful. According to court documents filed in the U.S. Bankruptcy Court for the District of Delaware, Rue21 chose to liquidate its inventory rather than to continue operating. This decision resulted in the closure of all 540 of its stores across the United States, along with the sale of its intellectual property.
This latest filing and liquidation does not come as a surprise especially to those who have followed the company’s financial troubles over the years. In 2017, when the company faced its second bankruptcy, Rue21 closed over 400 stores and reduced $700 million in debt. Despite these efforts, the company has struggled to remain profitable in especially with the competitive nature of its market.
What happens next for Rue21?
With the liquidation process underway, Rue21 is expected to implement “going out of business” sales at its stores. Shoppers can expect to find significant discounts on the remaining inventory as the company winds down operations. While it is unclear whether Rue21 will attempt to reemerge in a new form after this third bankruptcy, the close of its stores across the U.S. marks a great change in the retail industry.
Rue21’s struggle to stay afloat has been part of a broader trend in retail bankruptcies. According to Debtwire’s Restructuring Insights report shared by Fox Business “corporate bankruptcies in the U.S. jumped by 58% in 2023, driven by a combination of inflation, rising interest rates, global unrest, and stricter lending requirements”. This has made it increasingly difficult for struggling companies to secure the financial support they need to survive.
Other brands that have filed for chapter 11 bankruptcy
Rue21 is not alone in its financial difficulties. A growing list of apparel retailers has filed for Chapter 11 bankruptcy over the past few years. Some of the most popular brands include:
- Brooks Brothers: The iconic American brand filed for bankruptcy in 2020 and later emerged under new ownership after a sale.
- J.C. Penney: The department store chain filed for Chapter 11 in 2020, citing the financial impact of the pandemic.
- Neiman Marcus: Known for luxury goods, the retailer sought bankruptcy protection in 2020 but has since restructured its operations.
- Tailored Brands: Parent company of Men’s Wearhouse and Jos. A. Bank, this retailer also filed for bankruptcy during the pandemic.
- J. Crew: The preppy clothing brand was among the first major retailers to file for bankruptcy in 2020.
- New York & Company: The women’s fashion retailer closed hundreds of stores as part of its bankruptcy filing.
