Rue21‘s worst nightmare came to pass when it filed for Chapter 11 bankruptcy court protection on Thursday, putting it in the rarified Chapter 33 club.
The filing, which included petitions from five affiliates, was in a Delaware bankruptcy court under the name New Rue21 Holdco Inc. The initial paperwork listed assets and liabilities each at between $100 million to $500 million.
A court document filed by Colin M. Adams of Riveron, the retailer’s financial adviser, said underperforming retail stores, macroeconomic headwinds, growth of online shopping and industry competition all contributed to operational losses. Riveron marketed the retailer to potential bidders for assets as a going concern and to companies that would wind-down and liquidate operations.
Adams said the company decided to wind-down operations because a liquidation would provide greater value to creditors than a going-concern sale. Gordon Brothers Retail Partners was hired to conduct store closing sales.
Michele Pascoe, former Rue21 CFO and current interim CEO, told the bankruptcy court that the specialty chain operates more than 540 stores across strip malls, regional malls and outlet centers. The company also sells online through its e-commerce website rue21.com.
Rue21’s primary demographic are tweens, teens and young adults. The core customer base has an average household income of $50,000 annually, and are “focused on making value-priced purchases,” Pascoe said.
“While the Debtors continue to generate revenue, their revenue streams—even when combined with extensive cost cutting measures—are insufficient to meet their long-term liquidity needs and working capital requirements,” the interim CEO told the court.
The retailer is hoping to avoid the retail graveyard by selling its nameplate and related assets. Pascoe said the plan is for Rue21 to enter into a stalking horse purchase agreement for its intellectual property and other intangible assets. Both the asset purchase and store closing process are expected to be complete over the next two months.
Rue21’s filing follows on the heels of Express Inc.’s Chapter 11 petition last month. Retail bankruptcy experts, however, don’t expect a rash of Chapter 11 petitions in 2024. David Berliner, BDO’s principal and national business restructuring and turnaround services leader, said in March that retailers who are down on their luck are likely to file this year as lenders tighten up lending criteria.
Rue21 was founded in 1970 as Pennsylvania Fashions Inc., which later filed for Chapter 11 in February 2002. The retailer exited Chapter 11 in May 2003 and was renamed Rue21. The chain completed a $124 million initial public offering in November 2009, but changing consumer spending patterns impacted sales and the retailer was back in Chapter 11 proceedings in May 2017. The retailer exited its second tour of bankruptcy proceedings in September 2017, but found itself struggling again five months later after a lackluster holiday selling season.
The teen retailer in 2018 asked Rue21 chairman Michael C. Appel to take on the additional role of CEO. After leading a successful turnaround of operations, Appel left the company in February 2020. The retail chain found itself struggling again two years later. Talks with lenders helped it avoid a Chapter 11 filing. Thursday’s Chapter 11 filing is sometimes dubbed the Chapter 33, bankruptcy parlance for companies that have filed three Chapter 11 petitions.
