Teen focused jewelry and fashion accessory retailer Claire’s Stores has more than 2,800 stores in Europe and the U.S. It was the “beneficiary” of a leveraged buyout (LBO) back in the giddy days of 2007. The debt it acquired in that process, along with the over retailed, soft economy, online selling environment has pushed it to the edge.
The article I link you to below talks a little about the LBO process and how Claire’s private equity (PE) owners are now using the threat of a bankruptcy filing to try and negotiate itself out from under its debt. Below that discussion is a list of retail chain bankruptcies in the last 12 months, and a brief explanation of their PE connections where they exist. You’ll recognize most of the names on the list.
Ultimately, the decline in brick and mortar location is a necessary and appropriate reaction to market conditions. In the short term, it’s hard if only because of the discounted inventory that’s thrown on the market. It’s also hard on the poor shareholders who bought shares in some of these companies.
Here’s a text message I got a couple of days ago:
“My name is ************. I am from Kazakhstan. In ***********, 20**, I have invested all my savings into ********** at the average price of $*.**. I was an owner of 73,500 ******** common stocks when in ********, 20**they claimed CH11 without any reimbursement for shareholders and until the stocks were finally delisted in *******, 20**, so I have lost all my money. So, my question is: is there any chance to get any reimbursement from them?”
I had to tell him “no” and explain a little about U.S. bankruptcy laws. His result gives some of you something in common with somebody in Kazakhstan, which you probably didn’t expect. It’s also a reminder of investment rule number one: Never put all your eggs in one basket.
It’s worth reading this article to understand how LBOs work for some of the PE community and why things go to hell if the cash doesn’t keep flowing. It’s all about the balance sheet. The list of bankruptcies also reminds you of the breadth of our consolidation.