Another U.S. retailer ready to file for BANKRUPTCY after amassing more than $1 BILLION dollars in debt

Navigating a retail business in today’s chaotic retail environment would be difficult under any circumstances. But for any retailer working under the weight of a distressed balance sheet, their prospects can become very dark, very quickly.

Things are looking particularly gloomy right now for children’s apparel retailer Gymboree, with recent reports suggesting the company is preparing to file for bankruptcy. In many ways, Gymboree’s woes reflect those of the broader market: declining mall traffic, shifts in consumer spending away from material goods and toward services and experiences, e-commerce’s rapid absorption of market share, and growing competition from fast fashion, off-price and everyone else.

Now add a massive pile of debt to the equation: Gymboree’s more than $1 billion of debt — much of it stemming from private equity group Bain Capital’s leveraged buyout of the retailers in 2010 — has turned a sales drought into an existential crisis. With a multimillion dollar payment due June 1 and many hundreds of millions in principal due next year, the company has few options left but to restructure its debt and operations — if its creditors agree to a deal. (Gymboree and Bain did not reply to Retail Dive’s requests for comment.)

Gymboree recently appointed a new CEO — Daniel Griesemer, who ran teen apparel retailer Tilly’s for about five years until 2015​ — who will almost certainly oversee a company overhaul of some sort, quite possibly a rather painful one. While some experts indicate Gymboree could emerge from bankruptcy as a going concern with a much-diminished retail presence, the outcome will ultimately depend on how much debt forgiveness its lenders agree to as well as how much value its owners, creditors and — most importantly — its customers see in the company going forward.

If Gymboree can’t shed debt and reinvent itself for the current climate, it could face a bleak end to its story in liquidation. But regardless of whether Gymboree retrenches or worse, the harsh reality is that its competitors stand to gain.

‘Difficult traffic and conversion trends’

Just over 40 years-old, children’s apparel retailer Gymboree describes itself as making clothes “for every kid and every moment of childhood.” It operates 1,300 stores, largely based in malls and split among three separate brands: its higher-end Janie and Jack stores, its lower-price Crazy 8 stores, and the namesake Gymboree stores and their outlet counterparts. (Some experts believe the Janie and Jack stores, which are more profitable than the others, might expand under a  restructuring scenario.)

The company’s presence in the children’s apparel space is “centered on cute, wholesome, age-appropriate fashion featuring head-to-toe outfitting,” Monica Aggarwal, an analyst with credit ratings firm Fitch Ratings, said in a February report emailed to Retail Dive.

Founded by Joan Barnes in 1976, the company began as a play and music center for kids. A decade later, it added a line of specialty clothes. By the time Bain Capital bought and took the company private in 2010 at a premium for $1.8 billion, Gymboree was rapidly expanding, flush with cash and virtually without debt. The story has changed drastically since then: In December of last year, Gymboree reported a net sales decline of 4.6% compared to the prior-year period, a 5% drop in comparable sales and a net loss of $10.9 million.

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