Charming Charlie failed in its second attempt at Chapter 11 bankruptcy and will close the remaining 261 stores. Numerous factors, including “onerous leases” and liquidity problems, made it “increasingly difficult” for the retailer to pay its expenses (including $47.4 million in annual rent costs) and $81 million in debt, according to Charming Charlie CFO Alvaro Bellon.
Founded in 2004 by Charles Chanaratsopon, the merchandise was grouped together by color and theme. There were over 26 hues in all. This particular style of inventory ultimately became a liability. Their core customers were between the ages of 35 – 55, and items were priced between Macy’s and the teenage shop, Claires.
Their particular way of grouping colors and themes initially gave them a devoted group of shoppers. Then they found themselves overloaded with hues that were not that popular. The pending demise of Charming Charlie is a virtual checklist of everything that can go wrong in retail these days. Before its first Chapter 11, the retailer grew its brick-and-mortar footprint too quickly, built out an over-broad vendor base and ran into broad structural changes in the industry, as customers turned away from malls and other physical retail outlets.
To save money, they cut down on the number of employees, sometimes leaving one employee to handle an entire store. This cut down on possible sales with only one employee available and poaching of remaining employees.
Then they hastily brought in more merchandise because of their asset driven loan. To complicate things, even more, the new merchandise was off-brand or was not of the quality customers were used to.
After filing for Chapter 11 in December 2017, the company got rid of 100 underperforming stores. The company, Bellon noted, was still left with numerous underperforming stores at the insistence of landlords when negotiating for concessions elsewhere in their portfolio. Bankruptcy allowed Charming Charlie to shed 45% of its funded debt and handed control of the company over to a new set of owners. Yet its problems persisted. That basically did not help nor solve any problems.
After exiting bankruptcy, the retailer was “saddled with undesirable merchandise, unfavorable trade terms, and an undercapitalized balance sheet,” according to Bellon. It also had to contend with tariffs, severe weather events (which Bellon said cost them $1.1 million in sales), and customers with smaller tax refunds. By the time Charming Charlie filed for Chapter 22 this week, it was very clear they were not going to make it. Over 3,000 full time and part time employees will lose their jobs.
Now Charming Charlie joins the ranks of retailers this year to fail ultimately after a previous shot through bankruptcy. That list includes Payless and Gymboree, reminders that even the flexibility bankruptcy allows retailers to quickly shed debt and close underperforming stores can’t always fix underlying financial and operational problems. With any retailer filing for bankruptcy, they are different but the reasons behind it are the same.
And with any bankruptcy, is the retailer better off dead or alive, brutal but true.
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