Stein Mart has filed for Chapter 11 bankruptcy protection in a move that will see it likely to close most – if not all – of its 281 brick-and-mortar stores.
In a statement today (12 August), the off-price fashion retailer said it and its subsidiaries have filed voluntary petitions in the United States Bankruptcy Court for the Middle District of Florida, Jacksonville Division.
It has started a store closing and liquidation process and will continue to operate in the near term. In addition, Stein Mart is evaluating all strategic alternatives, including the potential sale of its e-commerce business and related intellectual property.
CEO Hunt Hawkins said the company lacks sufficient liquidity to continue operating in the ordinary course of business.
“The combined effects of a challenging retail environment coupled with the impact of the coronavirus pandemic have caused significant financial distress on our business,” he added. “The company has determined that the best strategy to maximise value will be a liquidation of its assets pursuant to an organised going out of business sale.”
The move comes just shy of two months since Stein Mart raised substantial doubt about its ability to survive over the next 12 months and said it was considering a number of options, including a sale of the company, after Covid-19 hit operational results and cash flow.
In April, a deal to take Stein Mart private was terminated due to the unpredictable economic conditions resulting from the coronavirus pandemic. Stein Mart and Kingswood Capital Management mutually agreed to end the merger, which would have seen an affiliate of Kingswood acquire all of the outstanding common stock of the retailer.
In financial results filed before the coronavirus pandemic took hold, Stein Mart reported a net loss of US$0.3m for the fourth quarter ended 1 February, compared to net income of $3.7m last year. Net sales slipped 1.2% to $336.6m.
An abrupt change in fortunes
Neil Saunders, managing director of GlobalData Retail, notes the failure of Stein Mart is not only the latest in a long line of retail bankruptcies, it also underlines that even traditionally robust segments like off-price are not immune from pandemic induced disruption.
“That said, even before the pandemic hit, Stein Mart was not in the best of health,” he notes. “A string of losses and modestly declining sales stood in marked contrast to others in the off-price space and demonstrates the fact that Stein Mart is, compared to its rivals, the poor relation. It lacks the scale of Ross, the buying savvy of TJMaxx, and the fashionability of Nordstrom Rack.”
A model that wasn’t working particularly well during normal times has been thrown into turmoil during the pandemic, Saunders adds.
“In the latest quarter, sales plunged by over 57% and the company posted a net loss of US$68m. Cash flow was poor, and the company was borrowing to keep operating. Against a weak balance sheet where liabilities exceed assets, this position was not sustainable.
“Although trade has started to come back, it has not done so at the pace seen by other off-price rivals. In our view, this reflects the relatively weak attractiveness of the Stein Mart brand and the fact that its stores are in locations that are, often, less optimal than the bigger off-price players. This is something that the company was already battling with – using marketing to expand knowledge of the brand. However, it can no longer afford to maintain these efforts.”
One area where Stein Mart had some success was in developing an online proposition, which it was in the process of shifting to be more omnichannel. However, in the last fiscal year online sales accounted for just 6% of all revenue and the model was less profitable than selling from stores, Saunders says.
“The embryonic nature of the business has proved insufficient to counteract the impact of shop closures.”
While there will likely be some interest in the brand assets of Stein Mart, based on current trends Saunders says a lot of the store estate is unviable and will close. This will leave further gaps in many strip malls which are also suffering from the closure of players like Pier 1 and various Ascena brands.
“For a company that, at the start of this year, was in the process of selling itself to a private investment firm, the bankruptcy is an abrupt change in fortunes that shows the immense damage the pandemic has inflicted on retail.”
Stein Mart joins others that have succumbed to bankruptcy during the pandemic, including Tailored Brands, Ascena Retail Group, J.Crew, and, most recently, fashion rental subscription service Le Tote and department store Lord & Taylor.