Blog: Leonie BarrieRetail reorganisation ramifications

Leonie Barrie | 27 October 2008

In the week that apparel chain Goody’s Family Clothing emerged from Chapter 11 bankruptcy protection, the news was not so good for two of its retail rivals. Off-price footwear seller Shoe Pavilion is to shutter its entire chain of 64 stores; and fashion retailer Mervyns is to hold “going out of business sales” at all of its remaining 149 stores as it begins to wind down its business. Both chains filed for Chapter 11 bankruptcy protection in July.

In the case of Goody’s, a US bankruptcy court has approved the company's reorganisation plan, which has included shuttering 69 stores, as well as closing a distribution centre in Arkansas, a corporate office in New York, and its e-commerce business.

But for Shoe Pavilion and Mervyns, their plans to find buyers and new sources of liquidity have proved fruitless in the current economic climate.

Of course the impact of these closures extends well into the retailers’ supply chains. T-shirt and underwear maker Hanesbrands estimates the closure of Mervyns will cost it $5.5m, or $0.04 per diluted share, in pre-tax charges.

Meanwhile, retail giant Wal-Mart Stores has raised the bar on global sourcing with strict new standards in environmental and social compliance from the companies making its products. At a special summit in China, it called on suppliers to eliminate poor quality and factory abuses, not just in their own firms but right along the supply chain as well.

From the beginning of next year, factories in China will have to meet rigorous social and environmental standards, they will be checked on their emissions and how they manage and dispose of hazardous substances. They will also be required to improve energy efficiency and use fewer natural resources.

For apparel firms, perhaps the most ambitious of the new demands is that Wal-Mart wants to know the name and location of every factory used to make the products it sells. Not just all direct import suppliers and all suppliers of private label and non-branded products, but every factory they deal with too.

Liz Claiborne is also continuing to reorganise its business, most recently with the sale of fashion label Enyce to entrepreneur and rap artist Sean "Diddy" Coombs. The deal comes only months after the company said it would be keeping the brand, and that it would strengthen and expand its activities despite offloading other labels in its portfolio. Liz Claiborne now says the sale is due to a combination of the unsettled economic environment and plans to focus resources on its other brands.



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