New Economic Realities   //   December 12, 2023

After liquidating stores, bankrupt retailers are staging a comeback

Retailers that filed for Chapter 11 bankruptcy are looking to start a new chapter.

Toys ‘R’ Us announced in November that it was planning to open a new flagship store at the Mall of America in Bloomington, Minnesota with plans to open more stores next year. Months after shuttering 115 locations earlier this year due to its parent company Bed Bath & Beyond going bankrupt, BuyBuy Baby unveiled plans last month to reopen 11 closed locations. And, off-price department store Century 21, which closed down its 13 stores in 2020, reopened its flagship location in New York’s Financial District this May.

Over the last couple of years, several retailers have succumbed to bankruptcy due to financial and macroeconomic challenges, among other reasons. When Toys ‘R’ Us filed for bankruptcy in 2017, it piled $7.9 billion worth of debt. BuyBuy Baby’s parent company Bed Bath & Beyond filed for bankruptcy in April this year with a staggering $5.2 billion in debt.

Now, some of these businesses are attempting to start anew by rebuilding their store fleet, many under new management. But their comebacks come at a difficult time in retail, where shoppers are weary of spending and industry giants are pulling back growth plans. 

David Berliner, principal for the business restructuring and turnaround services practice at BDO, said that retailers who have filed for bankruptcy can still benefit from the nostalgia people might have for their brands. Despite falling in the red, these retailers can still benefit from their brand value and recognition. He added that people may have enjoyed shopping in these retailers back when they were in business.

“When they buy the assets out of bankruptcy, in many cases, what they’re really buying is the intellectual property,” Berliner said. 

Reviving a bankrupt brand could indeed revitalize shoppers’ interest. When Century 21 reopened in May, it attracted a line of over 500 people. Its New York flagship location had been downsized but it still offers the same treasure hunting experience shoppers knew them for.

When these retailers reopen, though, they might not be exactly the same as they used to be. “[Century 21 is] basically a startup, at this point,” Judy Duzich, vp and general merchandising manager, who worked for Century 21 for nearly 30 years prior to bankruptcy, told Glossy. The retailer had to ink new 3PL partnerships and establish partnerships with new and emerging brands.

And these changes could have an impact on the attempted ressurrection. Berliner said that the new management behind the retailer might also make changes to cut costs. “It may not be the same quality,” he said. “If [their previous strategy] worked, they wouldn’t have liquidated in bankruptcy so the new owner has to make some changes.”

Making changes can also be a good thing. Buybuy Baby’s new owners, Dream on Me Industries, tore down walls at some locations to make it smoother for shoppers to explore different departments. The new owners also unveiled a new website that would integrate the in-store and online shopping experience better.

“Our branding has been strong,” BuyBuy Baby CEO Pete Daleiden previously told Modern Retail. “What we’re trying to do is take the brand into the future with better in-store experience, a better digital experience and redefining what it means to shop in the baby space.”

Suzy Davidkhanian, vp of content for retail and e-commerce at Insider Intelligence, said that bankrupt retailers could even have advantages when it comes to brick-and-mortar expansions.

“They don’t have the burden of all the poorly performing stores so they can really start clean,” she said. “They have hindsight so they can see what they did that wasn’t especially successful to avoid that trap.”

In 2018, Toys ‘R’ Us began closing down all stores and shuttered 182 unprofitable stores as part of its bankruptcy. The retailer has been attempting to make a comeback since 2021 and has now launched 452 shop-in-shops inside Macy’s stores. By next year, the toy retailer plans to open up to 24 flagship stores across the country. 

The company has been strategic about where it opens stores through a plan it calls Air, Land & Sea. For example, Toys ‘R’ Us opened its first airport shop in Terminal A at Dallas Fort Worth International Airport (DFW). It also said it has plans to open shops on cruise ships.

Making a brick-and-mortar comeback at this time, however, is a tough feat. 

Major retailers like VF Corp, TJX and REI, among others, are laying off staff to cut back on cost. E-commerce giant Amazon, who was largely blamed for many retail bankruptcies like Toys ‘R’ Us, had even put its retail expansion plans on pause after struggling to improve its financial performance. Shoppers pulling back spending on discretionary items and opting for value had also been a big theme in retail this year. 

To succeed with a comeback, they need to be a recognizable and loved brand, Davidkhanian said. She added that brands have to make sure that they are able to build a strong marketing team and online presence to keep up with competitors today.

“We often think about bankruptcy as the end,” she said. “I think for a lot of brands that have been successful who made one or two bad choices… bankruptcy can really help them start a new chapter.”