Eddie Bauer's bankruptcy filing this week was not unexpected; mounting debts and slumping sales in a difficult economic climate meant its future was simply untenable. But with a sale of the business already agreed, and the possibility of an even better offer in the pipeline, could this mark a fresh start for an iconic brand? Leonie Barrie reports.

Eddie Bauer's decision on Wednesday (17 June) to file for bankruptcy protection for the second time in four years came as little surprise.

After all, rumours have been circulating for several weeks that investors were lining up to buy the firm, and even president and CEO Neil Fiske warned last month that the retailer had "too much debt for the economic reality we now face."

The company's debt - put at around $295.8m - was compounded by slumping sales as shoppers shunned its stores, and meant there was little chance of getting the business back on track despite recent efforts to cut costs, eliminating 193 jobs and freezing salaries.

Indeed, as Fiske put it yesterday: "Eddie Bauer is a good company with a great brand and a bad balance sheet."

What took it so long?
Marshal Cohen, chief industry analyst at The NPD Group agrees, and believes the only unexpected part of the bankruptcy filing was "when, and why it took so long".

He told just-style: "The Eddie Bauer brand has a lot of heritage and marketability," adding there is still "so much" than can be done with it.

"Challenging finances and certainly challenging economic times made those opportunities fade out of reach, but they're not gone forever."

He notes that with a few "minor changes and some major merchandising and target shifts," the Eddie Bauer brand could even turn adversity to opportunity.

This seems to be borne out by the fact that Eddie Bauer is already planning a US$202m sale to private equity group CCMP Capital Advisors.

In practice, though, CCMP's is a so-called "stalking horse" bid, which could yet be beaten or matched by other bidders.

That said, the fact a sale was agreed so quickly is also seen as a good sign that the market is starting to pick up again.

"Seeing companies hungry for an opportunity to make an acquisition is a very good sign of available finances and interest in retail as things are poised to get better," Cohen notes.

Private equity rescue
It also comes as little surprise that a private-equity firm was so quick off the mark to rescue the retail chain.

In the last month alone, US women's wear retailer The Talbots has agreed to sell its J Jill brand to an affiliate of Golden Gate Capital.

And UK-based private-equity firm Emerisque - which has helped turn around international brands such as Puma, Lee Cooper and Ben Sherman - is front-runner to buy bankrupt suit maker Hartmarx Corporation.

Now that banks have tightened up their lending there is a skew towards a greater reliance on equity than debt in these deals.

David Lockwood, consumer insight director at Mintel, told just-style he believes the next year or so will see increased purchases of troubled companies by private equity firms "because they have so much cash and, not surprisingly, there are a lot of troubled companies to choose from."

Mintel expects bank-led financing to remain problematic in the next year, so anyone that can self-finance (or nearly so) will get their pick of the opportunities that exist.

Cohen also points out: "Many traditional industry firms are past the acquisition game as they are struggling to make those prior acquisitions work.

"More and more venture groups are looking at lifestyle brands, and retailers that have been going it solo for a while are seeking that next wave of investment. It is the equity firms' time to let these brands and retailers grow." 

Eddie Bauer says CCMP has pledged to keep the company operating as a going concern, maintaining the majority of its 371 stores and retaining the majority of its staff, which number about 10,000.

It also says it will continue to maintain critical vendor relationships and payments, and honour gift cards and Eddie Bauer's customer loyalty programme.

The sale process should be completed within 60 days, and in the meantime Eddie Bauer has secured interim financing from its current lenders of $90m, plus $100m based on the final court order, to meet its ongoing requirements while the sale goes through.

Positioned for growth
Fiske is hopeful that the bankruptcy process "will allow the business to emerge with far less debt, positioned for growth as the economy recovers and as our new products gain traction."

Even so, the Seattle-based company, which last month posted a first quarter loss of $44.5m, will need to work hard to reverse its slumping sales.

In the three months to 4 April, revenues tumbled 16% to $179.8m, while same-store sales fell 11.3% excluding the effect of Canadian exchange rates.

Since his appointment in 2007, Fiske has been trying to reposition the company, which was founded in 1920, as a premium active lifestyle brand.

However, he inherited a business weighed down by crushing debt after its previous owner, Spiegel Inc, emerged from bankruptcy protection exactly four years ago in June 2005 as Eddie Bauer Holdings Inc.

It had also moved away from its roots as a rugged outdoor clothing firm by extending the brand's reach from men's wear to women's and children's casual clothing too - which took it into direct competition with retailers like J Crew.

The Eddie Bauer brand band is also licensed for use on products ranging from car seats and strollers to luggage and travel accessories; camping gear, home furnishings and even some Ford motor car models.

Return to its roots
Fiske, who joined Eddie Bauer from Limited Brands' Bath and Body Works unit, set about returning the retailer to its heritage, adding at the time of his appointment that it had great "comeback potential" and "a rich legacy on which we can draw." 

Plans included more focused and well edited merchandise, more emphasis on its men's business and outerwear, and a more streamlined supply chain.

There were signs that he was on the right track to turning round the firm - at least in terms of merchandise focus.

Most recent milestones included First Ascent, the company's return to expedition-grade outerwear and gear which was developed with Peter Whittaker, nephew of Jim Whittaker, who wore Eddie Bauer gear on his first American ascent of Everest.

CCMP executives are said to support Eddie Bauer's current focus, with one executive saying that without the burden of debt, the retailer could quickly become a profitable company.

Mintel's Lockwood, however, questions whether Eddie Bauer is still relevant in today's retail market, pointing out that for a standalone retailer it lacks a large number of stores and its products lack focus.

"Importantly," he says, "all those licensing deals work against the exclusivity that the clothing brand has been trying to build by making their clothing only available in their own stores."

He sees potential for its online sales to drive cash flow - and even the option of an exclusive deal to become one of the high-end brands in a major retailer.

Cohen, meanwhile, believes the "mid-sized lifestyle brand chains, at least the few that are left, will be the next big growth sector in retail."

The question, however, is whether management is ready to make the most of this opportunity.