Kitten Heels are Dead. Long Live Kitten Heels.

The retailpocolypose is continuing at full speed, impacting retailers both here in the US and across the pond. Clothing retailer LK Bennett Ltd. is the latest High Street casualty, closing five stores and going into administration in the UK. It is joined by its New York-based subsidiary, L.K. Bennett U.S.A., which has filed for chapter 11 protection in the Delaware Bankruptcy Court.

Company Background

Opening in London in 1990 to bring “a bit of Bond Street luxury to High Street,” LK Bennett quickly established itself as an upmarket retailer. And its founder, Ms Bennett, just as quickly established herself as “the Queen of the Kitten Heel.” Bennett’s “smart” dayware is a favorite of Princess Kate Middleton and other celebrities. And even Prime Minister Theresa May has been knows to step out in LK Bennett kitten heels.

Faltering Steps

Corporate missteps and a challenging retail environment have led to declining sales and, ultimately, bankruptcy.  Many of the elements of the LK Bennett story are all too familiar.

  • The UK clothing and footwear sector are suffering from price deflation, leaving LK Bennett priced beyond the reach of most shoppers.
  • Today’s retail environment is all about authenticity and distinctiveness; LK Bennett has failed to embrace a sense of uniqueness and creativity that would set it apart from more competitively priced competitors in a saturated market.
  • An excessive number of stores at above-market rates – exacerbated by decreasing foot traffic and overdependence on sales at brick & mortar locations – has left the company struggling with excessive lease costs.
  • LK Bennett has also failed to connect with its young consumers via social media and has been overtaken by younger, more-affordable and digitally-savvier brands. (Sorry, Prime Minister.)
  • Ownership changes have left strategies in flux without time to take root and come to fruition.

And by the way…. is an “affordable luxury brand” even a thing?  Are consumers who are willing to invest in a luxury pair of shoes more likely to go all in and aim for a recognized high-fashion shoe brand, such as Jimmy Choo? 

What Comes Next for LK Bennett?

Interested buyers have been actively pursuing the company, at least in the UK. Similarly to (much, much) edgier UK lingerie brand and retailer Agent Provocateur, LK Bennet’s counterpart bankruptcy filing for its US subsidiary has likewise been teed up to pursue a sale.

Case Information

L.K. Bennett U.S.A. is represented by DLA Piper as counsel and Ernst & Young as restructuring advisor. The case number is 19-10760. The case has been assigned to Judge Kevin Gross.

Mette H. Kurth

Z Gallerie Suffers Self-Inflicted Wounds, Files Chapter 22 Bankruptcy Case

Z Gallerie, LLC, a CA-based home furnishing and décor retailer with 76 stores nationwide, has filed for Chapter “22” protection in Delaware.

Committee Formation Meeting

The Committee formation meeting is set for Wednesday, March 20, 2019 at 10:00 a.m. at the Doubletree Hotel in Wilmington, DE. Be prepared for a high of 50, a low of 34, and scattered showers. (Not that the weather in LA will be much better…. a high of 66 and more showers).

How Did It Get Here?

Founded in 1979, Z Gallerie filed its first Chapter 11 case in 2009 in the aftermath of the Great Recession.  At that time the original founders, the Zieden siblings, reacquired the company.  In 2014, the Ziedens sold majority control of the company to its current owner, Brentwood Associates, in a $110 million leveraged buyout.  Subsequently, the company’s performance declined significantly, bringing it to where we are today.

Z Gallerie is one of several recent furniture retailers to seek bankruptcy protection, including retailer The Robert Allen Group and Heritage Home Group. But unlike other retailers, Z Gallerie did not fall victim to the “retailpocolypse” but to self-inflicted wounds. The good news? Management is confident that it has addressed its operational missteps and is well on the way to turning the company around. Among the issues?

  • A steep decline in revenues after the Brentwood acquisition.
  • Leverage and liquidity issues.
  • A failed expansion strategy.
  • Delay in launching an e-commerce platform.
  • The failed launch of a new distribution facility.
  • The loss of a major supplier.

In 2018, the company generated more than $200 million in sales.  But at the time of the filing, it had less than $2 million in cash on hand.  Running out of adequate cash to fund operations, Z Gallerie approached its prepetition lenders for additional liquidity but could not secure operating funds outside of a Chapter 11 process.


Imagining the future…. “Speed and cooperation” will determine whether Z Gallerie survives.

Where Is It Headed?

The Plan and Sale Process

Z Gallerie has secured $28 million in DIP financing commitments, conditioned on the company moving rapidly through the bankruptcy process.  To that end, Z Gallerie has already filed a “toggle plan” providing for either the marketing and sale of the company or a debt for equity swap “on terms to be determined.” The proposed timeframe is roughly as follows:

  • March 25: File disclosure statement.
  • April 12: Enter final DIP financing order, bid procedures order
  • April 19: Term sheets due from potential buyers.
  • May 7: If indications of interest are insufficient to pay off lenders, provide evidence of exit financing or execute a business plan that significantly reduces debt by aggressively shuttering stores.
  • May 7: Order approving disclosure statement.
  • May 16: Bid deadline.
  • May 20: Auction for substantially all assets.
  • May 29: Finalize asset purchase agreement.
  • June 17: Enter order confirming plan or approving sale.

The plan, however, is essentially a placeholder with significant gaps to be filled in. For example, treatment of critical trade claims and general unsecured claims is “to come.”

Store Closings

Meanwhile, the company is seeking to close up to 17 stores and requesting approval of streamlined procedures to conduct store closing sales.  It anticipates 59 go-forward locations (55 stores, two outlets, and two distribution centers).

The First Day Hearing

Z Gallerie’s financing, and other first-day relief, was approved at the first day hearing held today, Tuesday, March 12, at 3:30 p.m.

Mette K.

Bertucci’s: Filing Alert & Committee Formation Meeting Notice

Italian restaurant owner and operator Bertucci’s Corporation filed for Chapter 11 bankruptcy protection on April 15, 2018.  The case is pending in Delaware.

Company Overview

Bertucci Info.jpgBertucci’s  was formerly known as NE Restaurant Company, Inc.  It changed its name to Bertucci’s Corporation in August 2001. Founded in 1981, the company is based in Northborough, MA.  Today Bertucci’s owns and operates a chain of 59 casual dining Italian restaurants in the Northeast and Mid-Atlantic.

A Bankruptcy Sale

The filing sets up a process to sell the company to Right Lane Dough Acquisition, LLC (an affiliate of Right Lane Capital) or an overbidder.  The proposed purchase price is $1.7 million in cash and a “credit bid” of up to $4 million.  In addition, the buyer will provide the company with exit financing in the form of $14 million in new second lien notes.

A Struggling Restaurant Market

Like others before it, Bertucci blames its bankruptcy filing on a proliferation of fast-casual restaurants and market oversaturation.

Bertucci’s, and the casual family dining industry generally, have suffered “a prolonged negative operating trend in an ever increasing competitive price environment.”

Since 2011, the company has experienced year-over-year declines in sales and revenue.

In fact, Reorg. First Day states that Bertucci’s is the third Massachusetts-based restaurant chain it has covered in recent years.  The others were Boston-based fast casual restaurant Cosi and the Sagamore-based restaurant chain Bugaboo Creek Steakhouse.

The Committee Formation Meeting

The company states it owes roughly $9 million to vendors, landlords, and other unsecured creditors.  The U.S. Trustee has scheduled a meeting to form a committee of unsecured creditors in the case.  The meeting will take place at 10:00 a.m. on Friday, April 27, 2018.  It will be held at the Delaware State Bar Association on 405 King Street, 2nd floor, in Wilmington, Delaware.  If you would like a copy of the formation notice, it is available here.

Barn Clouds.jpegThe weather forecast?  A very civilized high of 66 degrees.  With mostly cloudy skies becoming partly cloudy later in the day.  Because it is always partly cloudy in Delaware.  Except when its raining.  Or snowing.

Mette K.

Filing Alert: Hobbico Files Chapter 11 to Complete a Sale Process

Illinois-based Hobbico, Inc. sought chapter 11 bankruptcy protection yesterday in Delaware. Its goal? To continue a sale process started late last year.

The Bankruptcy Sale

The company says it is “actively” discussing a sale with potential buyers. (Translation: It does not yet have a commitment from anyone.) Hobbico’s prepetition lenders are financing the sale effort. They are calling for the following sale schedule:

  • Sale procedures by March 9;
  • A bankruptcy auction by March 26; and
  • A sale closing by April 5.

Events Contributing to the Bankruptcy

The company blames its bankruptcy on various events, including:

  • High leverage due to various acquisitions;
  • Lagging product innovation;
  • An underdeveloped e-commerce platform;
  • An increasingly competitive drone market;
  • Vendor issues; and
  • Depressed sales.

These factors eventually triggered defaults with the company’s secured lenders. They also lead to a deadly spiral of constrained liquidity, inventory shortages, and falling sales.

Additional Information

JND Corporate Restructuring is the claims agent. The case is assigned to Judge Kevin Gross (case number 18-10055 (KG)). Information about the Committee formation meeting is available here.

Company Background

Hobbico designs, manufactures, and distributes drones, radio controlled vehicles, and other cool hobby products. I wanted to post pictures for you, but I can’t find any on their website. (Underscoring my earlier point about their underdeveloped internet presence.) But the website does identify many of their 250 brands. These include Axial, ARRMA, Revell, Estes, Great Planes Model Manufacturing, DuraTax, and Top Flite. Based in Illinois, the company has operations and facilities in California, Colorado, Illinois, and Nevada.axid9060

Tower Hobbies is the company’s retail arm. It is also their highest margin distribution channel. Revell, Estes-Cox, and United Model make up its mass market business. And Great Planes represents the company’s wholesale operations. Besides its own trademarks, the company licenses various trademarks.rise0207

Wait…!  Their drones and other toys are featured on the Tower Hobbies retail website. Too bad Christmas is over….

Mette K.

It’s Black Friday, and FTI’s 2017 U.S. Holiday Retail Forecast Is Here

One of the perks of working in the restructuring space is the wealth of industry information and forecasting available from the many talented financial advisors who I work with.  FTI Consulting’s Retail & Consumer Products Practice, for one, is heavily involved with the issues and challenges facing retailers today, and I look forward to receiving a copy of their retail report at the end of each year.

The mood this year?  Guarded optimism.  But equally significant, one of this year’s take aways, according to FTI’s 2017 retail forecast, is that now, more than ever, how specific large retailers fare during the holiday season may be mostly or entirely divorced from the broader performance of the season.  You can download the full report here.

Mette K.