Zombie retailers close stores, hope for web afterlife

Suzette Parmley
Philadelphia Inquirer

In retail, some brands that could no longer cut it with brick-and-mortar stores are getting a second wind in the digital world.

Take the apparel retailer the Limited, a fixture in malls that provided professional women with blazers, dresses, and trousers at midprice points. Its death was swift and sudden and reflected the impact of the online powerhouse Amazon on traditional retailers.

The chain announced last January that it would no longer operate stores. It shut all 250 of them in 42 states, along with its website. It filed for Chapter 11 bankruptcy protection a week later in U.S. Bankruptcy Court.

Another women’s clothier, Bebe, also filed for bankruptcy and closed all of its stores to focus on selling online.

Last February, the private equity firm Sycamore Partners announced it had purchased the Limited’s brand and website, through a competitive auction as part of the bankruptcy proceedings.

Sycamore relaunched the brand’s website last fall — sans stores — and promised to communicate with the Limited’s loyal customers about how to obtain the merchandise “they know and love.”

Sycamore, which specializes in consumer and retail investments, partners “with management teams to improve the operating profitability and strategic value of their businesses,” the company mission states.

The firm’s investment portfolio now includes Belk, Coldwater Creek, Dollar Express, EMP Merchandising, Hot Topic, MGF Sourcing, Nine West Holdings, Talbots, and Torrid. In fact, Limited merchandise is also available on belk.com or in Belk stores.

Limited.com is still in its first quarter of operation strictly as a web retailer. No sales figures are available and Sycamore, as a privately held company, declined comment on how the brand’s online conversion has fared.

The idea of going exclusively digital runs counter to the strategy of some successful online retailers, such as the eyewear maven Warby Parker and the menswear retailers Bonobos and Tommy John, which are opening stores. But analysts say the online-only approach will likely continue due to the high costs of rent and staff and the decline in mall traffic.

“Wall Street is increasingly using the term zombie for any retailer that is struggling, as a kind of walking-dead euphemism,” said Garrick Brown, head of retail research at Cushman & Wakefield.

The notion of the “zombie retailer” came into vogue after Circuit City’s bankruptcy in 2008, Brown said. The retailer was liquidated, but its intellectual property was bought in 2016 and the brand re-emerged as an online consumer electronics retailer.

“But when it reappeared online, it was only the same company as before in name only,” he said. “It was a retailer that died and came back to life but in a form that while familiar, was totally different. A zombie.”

On Jan. 8 at the Consumer Electronics Show in Las Vegas, current Circuit City CEO Ronny Shmoel promised a relaunch using the latest and most advanced technology for “a new, more personalized online shopping experience” starting Feb. 15.

“With retail bankruptcies elevated, you are going to see more zombies in the next few years,” Brown said.

Among the bankruptcies of 2017 were those of American Apparel, BCBG Max Azria, Rue21 and Wet Seal. Many were due to declining sales and a heavy debt load as the combined burdens were too much to bear.

“Most of the retailers that are struggling still have loyal core consumers,” Brown said. “They just don’t have enough of them. I think that if a brand is a household name, or if it has a positive reputation or brand cachet, it will be a candidate for this (digital focus).”

Retail analyst Simeon Siegel, executive director at Nomura/Instinet Equity Research, said pure e-tailers’ physical stores validate the brick-and-mortar strategy. But “it is clear that certain companies may simply not be able to sustain them.”