Charming Charlie Bankruptcy: Jewelry Retailer Sought Chapter 11 Protection Due to Declining Foot Traffic in Malls

Charming Charlie Bankruptcy
iStock/Kenishirotie

Charming Charlie LLC, a Houston-based jewelry retailer, has filed for Chapter 11 bankruptcy protection as the company succumbs to the challenges faced by the retail industry, namely a decline in mall foot traffic and the ever-increasing prominence of online shopping. The Charming Charlie bankruptcy will result in some major changes for the company; nearly 100 stores will be shuttered as a result of Charming Charlie’s restructuring. Across the nation, Charming Charlie’s closing stores will become the norm as the once massive retailer struggles in the current economic climate.

As Charming Charlie files for Chapter 11, many stores will remain open for the holiday season, as Charming Charlie hopes to relive some of its past success and therefore mitigate the severity of its debt.

As many as 375 stores across the nation bear the company’s name, meaning that the Charming Charlie restructuring over the next few years could have massive ramifications for thousands of American workers.

Charming Charlie Sought Chapter 11 Protection, Closing About 100 Stores

The company is seeking permission during its bankruptcy proceedings to shutter 97 stores. As part of the Charming Charlie bankruptcy, the company must ask the courts for many of its business decisions moving forward, a common practice during a bankruptcy.

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Charming Charlie’s Chapter 11 protection will result in many store closures, to be sure, but it’s unclear what the ultimate future of the company will be.

“We are confident that by reducing the size and scale of our business, we can focus on the core strengths that make the company successful,” interim CEO Lana Krauter said in a news release.

The reason for Charming Charlie closing stores and its filing has a lot to do with the company’s debt. Charming Charlie’s debt is listed as somewhere between $100.0 million and $500.0 million, according to the filing, while the company listed as possessing between $50.0 million to $100.0 million in assets.

The Charming Charlie bankruptcy also led to the company securing a $20.0-million bankruptcy term loan from a group of its lenders and a $35.0-million asset-backed loan.

The company was founded in 2004 by Houston native Charlie Chanaratsopon, who in 2016 went on to be named on Forbes’ list of America’s Richest Entrepreneurs Under 40 with a net worth of $450.0 million.

Foot Traffic in Malls on Decline as Online Shopping Continues to Surge

One key factor that contributed to the downfall and ultimately the Charming Charlie bankruptcy filing was the massive decline of malls in America. Once the go-to center for all one’s shopping needs, the advent of e-commerce and online retailers have significantly reduced the importance that malls play in consumers’ shopping lives. The result is that retailers across the country are feeling the pressure that e-commerce is putting on their businesses, with sales declining and many stores underperforming.

Somewhere between 20% and 25% of American malls will close within five years, according to a report from Credit Suisse Group AG (VTX:CSGN). This is largely due to a lack of foot traffic in malls and the subsequent drop in terms of sales and profit. Many have deemed this the “retail apocalypse,” with massive big box stores shuttering and filing for bankruptcy in 2017—companies that were once thought to dominate the retail landscape instead are now struggling.

Many have put the blame on the “Amazon effect,” which is a catch-all term for online coming to dominate brick-and-mortar retail stores.

The Credit Suisse report goes on to say that a record 8,600 stores will close by the time 2017 is over, which outpaces even the record set by the recession of 2008, which saw about 6,200 stores close.

One final bit of bad news from the report: online sales are pegged to grow from 17% of retail sales today to 35% by 2030.

Considering the economic landscape it faced, it’s not hard to see how the Charming Charlie bankruptcy came about.

How retail adapts to a challenge that—far from getting better—is only likely to get worse remains to be seen.

 

Sources

Charming Charlie seeks bankruptcy court approval to close 6 Illinois stores,” Chicago Tribune, December 12, 2017.

Houston-based retailer Charming Charlie files for bankruptcy,” ABC 13 Eyewitness News, December 12, 2017.

Malls are doomed: 25% will be gone in 5 years,” CNN, June 2, 2017.

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