Gymboree, a company that specializes in children’s clothing, recently filed for Chapter 11
bankruptcy as the weight of its debts became inescapable.
The retailer currently has more than $1.4 billion in debt, and looks to eliminate $900 million from that total figure. The company will close at least 375—and up to 450—of its 1,281 stores across the country to “right size” its current brick-and-mortar operations. CEO Daniel Griesemer, who took the position approximately a month ago, said the moves the company is making will allow it to address its debt while also maintaining a focus on future operations and continuing to execute its main goals.
The company also announced the departure of CFO Andrew North. AlixPartners, a company that specializes in helping large corporations make financial recoveries, will assist Gymboree through its bankruptcy filing, and one of its executives will serve as the company’s interim CFO.
Gymboree is the most recent major retailer to file for bankruptcy, following Wet Seal, Payless and many others. With more shoppers than ever choosing to do their shopping online rather than in big-box stores, many traditional retail powerhouses are falling on tough times.
A brief overview of Chapter 11 bankruptcy
Chapter 11 bankruptcy is most commonly referred to as “reorganization” bankruptcy. The Chapter 11 cases that typically hit the news tend to be those involving major corporations, such as General Motors, United Airlines, K-Mart and now Gymboree. However, there are nearly 14,000 Chapter 11 bankruptcy filings each year in the United States, making it a rather common occurrence.
During a Chapter 11 bankruptcy case, the debtor will continue business operations as normal. The bankruptcy court may choose to appoint a trustee to take over certain operations from the debtor if the court determines there is sufficient cause to do so. Examples of situations in which a trustee will take on financial management tasks include cases in which the bankruptcy was due to dishonesty, fraud, gross financial mismanagement or general incompetence.
The bankruptcy court also maintains control over most major financial decisions while a business or organization is going through Chapter 11 bankruptcy. This includes the sale of any assets, entering or breaking a lease of property, expanding or shutting down specific business operations, any deal that requires the debtor to borrow money and the retention and payment of fees and expenses to attorneys or other professionals.
Finally, the debtor and the bankruptcy court will come to an agreement on a “reorganization” plan, allowing the debtor to restructure its financial affairs to enable continued operation and an improved ability to pay off future obligations. Most of these plans require at least some level of downsizing.