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Cushman & Wakefield Retail Newsline

Week of June 18, 2018

More Ominous Signs for LBO-Debt Addled Retailers & Saying Goodbye to a Man Who Transcended the Food World

News broke late last week that Claire’s unsecured creditors were lining up in opposition to the retail chain’s proposed restructuring. As you may well know, the accessories chain filed for Chapter 11 bankruptcy protection a few months back. It was the latest in a series of retail failures due to leveraged buyout (LBO) related debt. The practice, in which buyers fund acquisitions via leveraging (with that debt then placed back on the balance sheets of their acquisition targets), is increasingly commonplace especially among private equity firms, though some major deals have also been driven by real estate investment trusts.

The Claire’s bankruptcy is just the latest in LBO-debt related bankruptcies.  The challenge in today’s market is that even just moderate declines in sales may prove fatal to retailers with huge debt loads.  With the latest news that Claire’s creditors are likely to reject that chain’s reorganization plans, there is a likelihood that Claire’s may not survive the Chapter 11 process and may find itself in Chapter 7 liquidation.

Claire’s currently operates roughly 1,300 stores of its namesake brand as well as approximately 240 Icing locations. Both concepts typically average about 1,000 square feet in size. They predominately locate in malls, though some are in lifestyle center and urban locations. The chain leases 100% of its portfolio, with average unit sales typically hovering in the $400 to $500 per square foot range.

In all, the chain has been able to exit about 130 leases to date, but a total liquidation would mean well over 1,200 additional storefronts going vacant in the United States; globally the chain operates roughly 3,000 stores.

Unfortunately this is yet another ominous sign of what may befall LBO-debt addled retailers seeking bankruptcy protection. We have already seen a number of high profile retailers fail to re-emerge from bankruptcy in the past year. Some of these concepts have been relevant ones or among the dominant players in their categories. Regardless, whether troubled retailers were relevant or if they were concepts long past their prime, creditors have been increasingly unwilling to throw retailers lifelines. The implications of this for retailers that aren’t necessarily the dominant players in their own categories, or those that may be facing still competitive landscapes against more financially secure rivals, are bleak.

It’s far too soon to say that Claire’s will have to liquidate as some others have who sought bankruptcy protection, but the writing on the wall appears ominous. Perhaps more importantly for retail landlords is the fact that there are a number of major retailers on most analyst bankruptcy watch lists that are all facing the challenge of LBO-related debt.

Guitar Center, Neiman Marcus, J. Crew, GNC, Charlotte Russe, 99 Cents Only, David’s Bridal and Lands’ End are just a few of the concepts that analysts are watching carefully. Meanwhile, a dozen other firms face the looming challenge of LBO-related debt, including Petco, PetSmart, The Fresh Market, Hot Topic, Academy Sports, Talbots, Hudson’s Bay Company, Pep Boys, Chuck E. Cheese, JoAnn Fabrics and BJ’s Wholesale Club.

Heading into this year, we predicted that store closure levels could be as many as 11,000 among major chains, up from the roughly 8,500 major chain closures we recorded last year. As of the end of May, we tracked more than 5,000 already. While we had initially believed that this number would be driven by heightened strategic closures, those have not transpired at the numbers we anticipated as landlords have shown themselves increasingly willing to litigate with retailers looking to get out of leases early. Unfortunately, we are still on pace for our prediction of 11,000 closures — those numbers instead are being driven by LBO related bankruptcies. Let’s hope that Claire’s doesn’t add considerably to those totals—Stay tuned!

I was in Minneapolis last Friday morning when news of Anthony Bourdain’s suicide broke.  I was deep in the midst of shooting a new episode of our Cool Streets video series on the Twin Cities and, ironically, we had just been to the old Dayton’s Building downtown. This, until recently, had been where Macy’s had had a presence on Minneapolis’ historic CBD retail corridor, Nicollet Mall. This historic building will be the new home of a food hall by Twin Cities native and Bourdain contemporary Andrew Zimmern.

For me to say I had ties to Anthony Bourdain would be as ludicrous as a guy selling peanuts at a Cleveland Cavaliers game saying he was connected to LeBron James. With that said, I suspect that anyone even peripherally involved in the food world, even if just involved in the real estate connected to it, likely felt the same sort of connection to Bourdain as me. He certainly didn’t start the foodie movement and he certainly wasn’t a major player on the real estate side of it. Yet no one in the food world loomed quite so large in the emergence of foodie culture – nor had nearly as much of an impact in mainstreaming the trend and bringing it into the American living room – quite as successfully as Anthony Bourdain.

He did it, of course, by transcending. Often referred to as a bad boy chef, Bourdain disdained the moniker, referring to himself as “a cook, at best.” It wasn’t Anthony Bourdain the chef, or cook, that changed the world. It was Anthony Bourdain the unflinching and uncompromising writer and artist that did. His shows were more than simple food travelogues. While food may have been at the forefront of his work (whether in his books from the incredible Kitchen Confidential onward) or in his programs (from A Cook’s Tour to Layover and from No Reservations to Parts Unknown), his work was more about the commonalities of food as the ambassador and cultural glue binding us all.

Since I’m very involved in the food hall world, the news hit me hard on many levels. Of course, this was partially due to my own selfish reasons. I had long watched Bourdain’s challenged food hall project on Pier 57, hoping to eventually see what would have assuredly been one of the great food halls of the world come to fruition. It was likely Bourdain’s own uncompromising vision of a vast southeast Asian-themed street market that made that project ultimately too ambitious, but I would have simply cherished the opportunity to work with a personal hero of mine to bring his dream for Pier 57 to life.

When we were putting together the idea for our Cool Streets video series, I remember our pitch being simply, “We want to do a real estate focused series where we focus on cool urban markets a la Anthony Bourdain.” I know: Pretty lofty goals for a modest little video series covering real estate in the guise of a travelogue. And while there is little else in our series that would ever compare to Mr. Bourdain’s illuminating and enlightening explorations, it was his work that inspired us.

All of this made the news of Anthony’s suicide so much more devastating when I got the call from a chef friend of mine a couple of Fridays ago.

“I fear Tony has now become an immortal,” my friend shared with me during our brief conversation and I knew immediately what he meant. If you have any interest in the arts, then the idea that some of our best and brightest creative minds are more prone to depression isn’t a new one. Manchester University in England actually published a paper correlating suicides to tortured geniuses in March of this year.

We have a way of immortalizing our tragic heroes like no other. Without Anthony here to tell us, we can only envision the darkness of the personal eclipse he must have been enduring that would make such a talent—beloved, respected and admired—turn his back on a life so many of us would assume, on its surface, to be so worth living. And while no tortured soul in those shoes sees suicide as a path to immortality, it is something we seem to reserve for the great talents among us that succumb to their own inner demons.

It’s a bum trade if you ask me. If you’re lucky, the memory of who you were and what you did in this life might live on through your children and their children. And that is if you’re lucky—there are plenty of people that the world begins to forget long before they die.

The exceptional ones among us are the ones memorialized in history books.  All too often it’s not for the reasons that Anthony Bourdain will be remembered—the exceptional talent, the exceptional creativity or the exceptional decency or honesty. All too often it’s the exceptionally rich, the exceptionally powerful and (far too often) the exceptionally evil that we enshrine in the annals of posterity.

The cruel joke of course is that immortality doesn’t really exist. It’s just a longer path of descent into oblivion.

If the real choice is living a long and full life, surrounded by the ones you love versus years cut tragically short but remembered for a few extra moments by the world you left behind, it’s just not much of a trade, is it?  It certainly is one where we all lost in the case of Anthony Bourdain.

Garrick H. Brown

Garrick Brown serves as Vice President, Retail Intelligence fo Cushman & Wakefield throughout the Americas. He is one of the leading retail real estate analysts in the United States; speaking frequently at industry events and regularly quoted on retail matters by the Wall Street Journal, the CBS Evening News, NBC News, CNBC, National Public Radio, Women’s Wear Daily and dozens of Business Journals and other industry publications.

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