Bankrupt Claire's Is Headed Toward Liquidation If No Buyer Found

Forbes

5 days ago

Teen and tween retailer known for its ear-piercing services and affordable, trend-forward jewelry and accessories has filed its First Day Pleadings with the Delaware Federal Bankruptcy Court in support of its Chapter 11 bankruptcy petition.
It outlines two paths forward for the troubled mall-based retailer. Under its go-forward plan, it must find a buyer for its remaining 800 North American stores after closing 700 stores, including all 120 Icing stores, its older sister brand, and 210 Walmart store-in-store locations.
Sarah Foss, Debtwire's global head of bankruptcy, doesn't have much hope it will follow this route. 'It is unlikely that such a bidder will emerge,' she told Retail Wire. In early June, the company reached out to 150 potential strategic and financial buyers and executed 60 confidentiality agreements. The company said it received multiple letters of intent and some negotiations are ongoing.
If no buyer is found, it will begin liquidation. Hilco Merchant Resources has already been signed to handle liquidation in the U.S. This is the most likely scenario since Claire's joined the infamous 'zombie' retailers club after filing multiple bankruptcies – Claire's filed first in 2018. Once a retailer reaches walking-dead status, it doesn't turn out well, just ask Forever 21, Rue21, Joann Fabrics, Party City and Rite Aid.
CEO Chris Cramer blamed the company's failure on three factors: a shift away from brick-and-mortar retail, a heavy debt load and 'macroeconomic factors,' i.e. tariffs – 70% of its products are imported, including 56% from China.
Yet, Cramer also serves as Claire's COO and CFO, which would test the limits of even the most talented executive overseeing an international retailer with 2,300 stores, including 1,350 in the U.S. and 13,000 employees, of which 7,000 are considered essential for the go-forward plan.
Troubled Past
Since its first bankruptcy filing, Claire's was able to bounce back, after it unloaded $1.9 billion in debt and secured $575 million in new capital under Elliott Management Corporation and Monarch Alternative Capital.
It also navigated the pandemic store closures and enjoyed a post-pandemic bounce in 2021, so much so that it filed for an IPO at the end of September 2021. But it got out over its skis in its ambitious plans and eventually withdrew the IPO in July 2023.
Effectively, the company has been in a downward spiral ever since, and even with the change of leadership in June 2024 when Cramer stepped in and then-CEO Ryan Vero stepped down, the damage was done.
Excessive Growth Without Necessary Infrastructure
The Claire's banner alone operates nearly 2,000 retail stores, including 1,500 in North American and 825 internationally. It also supports some 200 international stores under a franchise model.
That store footprint puts it in league with retailers such as Target, Home Depot, Tractor Supply, Ulta, Gap Inc. across Gap, Banana Republic and Athleta, and Signet Jewelers, including Kay's, Zales and Banter by Piercing Pagoda, which goes head-to-head with Claire's in its mall base though it is more upscale.
It also expanded through a concession model. It partnered with retailers, including Kohls, CVS, and Walmart, to carry Claire's products from which it derived a sales commission.
Concessions grew to over 20,000 locations through 2023. However, it didn't have the inventory management systems to support the concession business, let alone its core retail operations, and confronted serious inventory shrinkage issues in those locations.
After being unable to turn a profit in the concessions business, it scaled back concessions to 9,000 locations over the last two years. Through the bankruptcy proceedings, all North American concessions will be shuttered. Note: Walmart was both a concession partner and host for Claire's operated store-in-stores.
Claire's e-commerce storefront has been a big loser, proving 'not conducive for the long-run,' the company stated, especially since its core ear-piercing services can only be provided in-store. Plus the company failed to bring its e-commerce shopping experience up to current industry standards.
As the company tried to scale, it didn't have the necessary infrastructure to sustain that growth. Each store location carries some 7,500 individual SKUs, yet the existing supply chain system couldn't absorb the load nor could it effectively forecast demand.
To fix that problem, the company brought in Blue Yonder's end-to-end supply chain management system which went operational just before the 2023 holiday season, but by then it was too late.
Failure To Adapt To Changing Tastes
In retrospect, Claire's rested upon its laurels and thought the past could carry it forward, as it stated:
'Claire's is a global brand powerhouse for self-expression, creating exclusive, curated and fun fashionable jewelry and accessories. Claire's is also a go-to establishment for ear piercing, having pierced over 100 million ears since 1978. Indeed, Claire's ear-piercing services are a renowned 'rite of passage' for millions of girls across the world who trust Claire's with their first ear-piercing experience.'
It didn't effectively adapt as disrupters swooped in with more trend-forward products and more modern ways to shop. 'Lovisa offers younger shoppers a more sophisticated assortment at value prices,' noted GlobalData's Neil Saunders. And Rowan has moved into the more premium space, offering all hypoallergenic jewelry and piercings performed only by licensed nurses. Ulta and Five Below have also entered the piercing space.
And while the company cited a decline in mall shopping and a shift toward e-commerce as a major factor in its decline, it also observed:
'The majority of the Company's customers are young individuals who do not themselves have access to funds, credit cards, or the ability to shop online. These customers rely on their parents or caretakers to bring them to the Company's stores so that they can see and touch the Company's products.'
So which is it? Claire's describes its core customers as 'Gen Zalpha,' a combination of Generation Z, ages 13 to 28 years, and pre-teen Generation Alpha. A report by ICSC disputes the assertion that the younger generation is avoiding malls and other in-person retail experiences, based upon a survey of 1,000 GenZ consumers.
'Our research on Gen Z shows that malls are evolving into social hubs for this critical demographic.,' shared Stephanie Cegielski, ICSC's vice president of research. 'Three in five Gen Zers visit malls just to socialize or meet friends, even if they don't have a specific purchase in mind.'
The company's claim that young people aren't shopping at malls is a red herring. It didn't change with the times. The brand has been operating in essentially the same format with ear piercings and accessories since 1978.
The core Claire's customer back in the day is the grandmother of its core customer today. Meanwhile, emerging competitors, like Lovisa, Rowan and Studs have a youthful, modern vibe that Claire's can't match.
Claire's Time Has Passed
'The chain has been swamped by a cocktail of problems, both internal and external, that made it impossible to stay afloat,' GlobalData's managing director Saunders observed. 'Most recently, tariffs have pushed costs higher, and Claire's is not in a position to manage this effectively.'
He sees little way forward for the company. 'Reinventing will be a tall order in the present environment.'
Debtwire's Foss agrees and suggests that Claire's is too far gone to recover. 'Bankruptcy can be a good option for a struggling retail chain, allowing it to refocus, trim its debt and slim down its retail footprint,' she said. 'However, retailers that have emerged from Chapter 11 only to file again a few years later often find themselves liquidating and shutting their doors entirely.'