The Retail Bankruptcy Boom: The factors disrupting dominant brands

Recent Chapter 11 filings in the retail sector have highlighted significant struggles for well-known brands. 

Many of these filings have been driven by factors such as inflation, changing consumer habits, debt burdens, and the overhang of the Covid-19 pandemic. Let’s take a look at some of the most notable examples:

• TGI Fridays filed a Chapter 11 on Nov. 3, 2024. Two private equity groups, TriArtisan and Sentinel Capital Partners LLC, had jointly acquired TGI Fridays in 2014. Sentinel exited in 2019. Once a destination spot for happy hours, Dallas-based TGI Fridays had been losing ground in the U.S. dining scene as consumers opted for newer restaurant choices. Sales declined, and the chain closed dozens of locations to stabilize its finances. TGI Fridays tried to pivot to delivery and to-go services after the pandemic, but U.S. sales dropped 15% from the previous year.
• Tupperware filed for Chapter 11 bankruptcy in September 2024, after struggling with high debt, increased competition, and changing consumer habits. Once a household staple, Tupperware faced mounting losses, compounded by the shift towards more sustainable and reusable food storage alternatives. Despite an initial boost in sales during the Covid-19 pandemic, Tupperware struggled to maintain revenue growth and adapt to a retail landscape favoring in-store and online competition over its traditional direct sales model. Tupperware battled during its bankruptcy with its lenders who were intent on liquidating the company. Eventually, Tupperware reached an agreement to sell its assets to its lenders as a going concern.
• Red Lobster filed for Chapter 11 in May 2024, grappling with over $1 billion in debt and 48 locations shutting down due to high lease and operational expenses. The restaurant chain had faced declining customer traffic and controversies around its promotional strategies​. The bankruptcy filing was part of a plan to reduce its debt, streamline operations, and seek a buyer. The seafood chain, known for its popular promotions like "Endless Shrimp," had struggled with rising costs and lower customer traffic post-pandemic, impacting profitability. A stalking horse bid by Red Lobster's existing lenders was submitted by RL Investor Holdings LLC, backed by Fortress Investment Group, alongside other financial backers. The U.S. Bankruptcy Court approved the plan, positioning Red Lobster for a fresh start under new ownership, supported by an investment of $60 million to stabilize and grow the business.
• Blink Fitness, owned by Equinox Holdings, filed for Chapter 11 bankruptcy in August 2024. This filing was part of a strategy to streamline operations and optimize the gym chain's footprint, potentially involving the closure of underperforming locations. The company plans to pursue a sale through the bankruptcy process, with a court-approved infusion of $21 million from existing lenders to keep operations stable. Blink Fitness, which operates over 100 locations across the United States, has struggled with high lease costs and the long-term effects of the pandemic on the fitness industry.
• LL Flooring, formerly known as Lumber Liquidators, filed for Chapter 11 bankruptcy in August 2024 and soon after announced it would close all 400 of its stores across the United States. The company, a major player in hard-surface flooring, had initially planned to sell its business through the bankruptcy process. Despite interest from several potential buyers, no acquisition offers materialized, prompting the company to liquidate its assets instead. LL Flooring secured $130 million in debtor-in-possession financing from a bank group led by Bank of America to fund ongoing operations during this wind-down phase.
• 99 Cents Only struggled with inflationary pressures and filed for bankruptcy in April 2024, ultimately closing 125 stores and selling 170 locations to Dollar Tree, reflecting consolidation trends among budget retailers​. The company, which had struggled with inflationary pressures, supply chain challenges, and shifting consumer habits, was unable to sustain its low-price business model in the current economic climate. Hilco Global was appointed to manage store closures, liquidate assets, and sell off real estate associated with 99 Cents Only locations.
• Express Inc. filed for Chapter 11 bankruptcy in April 2024. The company cited challenges from changing consumer preferences, increased competition from fast-fashion and athleisure brands, and residual financial pressures from the COVID-19 pandemic as key factors leading to the filing. The bankruptcy filing was also made to facilitate a potential sale of the majority of its assets to a consortium led by WHP Global, which includes prominent retail landlords Simon Property Group and Brookfield Properties.
• Rite Aid filed for Chapter 11 bankruptcy in October 2023, driven by a combination of financial difficulties, declining sales, and significant legal challenges from opioid-related lawsuits. The restructuring plan was aimed at allowing Rite Aid to emerge as a leaner, more viable entity in a competitive retail pharmacy market while addressing its liabilities from opioid litigation. 

Each of these bankruptcy filings reflects the pressures of changing customer habits, increased costs, and the after-effects that Covid-19 put on retail companies, no matter how old or established a retail brand is. Today’s highly competitive market and an onslaught of broader challenges in the retail space amid continued economic pressures have led to companies attempting to adjust through restructuring.

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Fortunately, bankruptcy is well suited to retailers. The Bankruptcy Code allows a debtor company to either “assume” or “reject” a lease agreement. By assuming the lease agreement, the debtor company takes on the obligations under the lease on a go forward basis. By rejecting the lease agreement, the debtor company is able to terminate its obligations under the lease with the landlord having only a pre-petition bankruptcy claim. These claims are often paid only cents on the dollar. For a retailer with dozens if not hundreds of locations, this can result in massive savings.

Due to the conditions noted above, it’s likely that we haven’t seen the last of the retail bankruptcy wave, and it could continue well into the new year. The silver lining of a Chapter 11 restructuring provides an alternative path to preserve some of these retail brands, allowing them to change their capital structure rather than vanish from the consumer landscape. How they move forward post-restructuring will provide valuable insight into the overall retail outlook for the future.