Retail Liquidation Trend Deepens With Christmas Tree Shops Failure

More retailers that filed for bankruptcy are liquidating inventory and going out of business for good after failing to pull off turnaround plans, as shifts in consumer behavior continue to threaten bricks-and-mortar chains.

Last week, Christmas Tree Shops said it would close all of its stores and liquidate, after its lenders said they were pulling the plug on the retailer’s efforts to reorganize in bankruptcy.

The retailer’s financial performance deteriorated after entering chapter 11, leading it to default on a $45 million loan it took out to fund its bankruptcy reorganization. The company now is pivoting to liquidate its roughly 70 remaining stores unless a buyer emerges within the next week or so.

Christmas Tree Shops is following the path of a number of other retailers that recently aimed to restructure debt while keeping their business going but ended up having to put up “everything must go” signs. The liquidation trend among distressed retailers is driven by the persistent competitive threat from e-commerce as well as other factors such as inflation that has damped consumer spending, a change in consumer behavior to favor experiences over physical goods, and the expense of maintaining bricks-and-mortar locations.

“The recent run-up in retail bankruptcies can be attributed to several factors, including the continued shift towards online shopping, combined with a general increase in the cost of living which have had a meaningful impact on retail sales across most sectors,” said Richard S. Klein, senior managing director of Hilco Corporate Finance, Hilco Global’s investment banking advisory firm. “Many retailers that file for bankruptcy wind up liquidating because they have previously explored all paths to resuscitating the business prior to filing, and there is very little going concern value left.”

Bed Bath & Beyond also tried for months to find a way to avert liquidation, attracting financing from both a hedge fund as well as individual investors. But the money that it raised was insufficient to enable the company to revamp its operations and put itself on sustainable footing. The company is now selling off its remaining inventory and shutting down stores.

The company recently struck a deal to sell its intellectual property to Overstock.com for $21.5 million, and last week reached a separate tentative agreement to sell the intellectual property of its Buybuy Baby subsidiary to fellow baby retailer Dream On Me Industries for $15.5 million. Bed Bath & Beyond had a market capitalization as high as $16.36 billion, in 2013, according to FactSet.

“Bed Bath & Beyond has reportedly stated it shall have an ‘orderly liquidation’ under the auspices of chapter 11,” said Anthony Michael Sabino, professor of law at St. John’s University. “But it is far more akin to a liquidation under Chapter 7 of the bankruptcy code, just by another name.”

David’s Bridal, the wedding dress retailer, filed for bankruptcy in April while looking for a buyer willing to continue to operate the company. The company said that if its efforts to find a buyer are unsuccessful, it would wind down its operations with the help of liquidation firm Gordon Brothers, according to a court filing.

Home-goods retailer Tuesday Morning also has moved to liquidate stores after filing for bankruptcy in February for the second time in less than three years.

Recently, bricks-and-mortar retail sales haven’t been keeping pace with the general growth of the economy, as more consumers opt to spend on experiences rather than home goods following the end of pandemic restrictions.

However, signs that the economy might be improving could help buoy retailers’ prospects. Americans opened their wallets more this spring in the latest sign of the economy’s surprising strength despite high interest rates and inflation. Consumers spent a seasonally adjusted 0.3% more in May at retail stores, restaurants and online, following April’s strong 0.4% advance, the Commerce Department said. That growth reflected robust hiring and rising wages that pumped up incomes in recent months, further defying recession predictions in early 2023.

But for certain retail companies with physical locations, that growth could be insufficient to help them keep their businesses intact. 

—Soma Biswas contributed to this article.

Write to Alexander Gladstone at [email protected] and Alexander Saeedy at [email protected]