A Splash of Cold Water

The recent announcement from Coldwater Creek that the women’s apparel brand will seek Chapter 11 protection and plans to start liquidating its inventory didn’t exactly come as a surprise. It has been years since the company posted a quarterly profit, and industry analysts and observers have been pointing to Coldwater’s worrying inability to compete stylistically in an increasingly competitive and youth-oriented women’s fashion market. While it might not be a surprise, it is perhaps a troubling indication that some of the fallout from a less-than-gangbusters holiday shopping season and an otherwise lousy 2013 might still be on tap.

This is now the third liquidation announcement from a major national brand in the last five months: Loehmann’s filed for bankruptcy in December and began liquidating in January, Dots did likewise in March, and now Coldwater Creek is following suit. It’s not uncommon for brands to file for bankruptcy protection, but major national brands moving to liquidation is rare. Each of these chains was searching for a buyer, and one never showed up.

The big question to me is whether this is a coincidence or a sign of deeper retail issues? Are these the inevitable casualties of a competitive women’s apparel segment? I lean toward the latter, and here’s why. If you look at the commonalities between those three brands, what strikes me is that, while they are all women’s apparel retailers, they operate in quite different niches and across a wide range of price points. Dots was very price sensitive, Loehmann’s was better quality at a fair price, and Coldwater Creek is higher quality at a higher price point. The only one of those three that really surprised me with the bankruptcy/liquidation announcement was Loehmann’s — I thought they were fairly competitive in their space (with brands like TJ Maxx, Stein Mart and Ross). Coldwater Creek is really more like Talbots, which, not coincidentally, has also struggled for much of the same demographic and stylistic reasons. The problem with appealing to a more mature woman is that the more mature customers are not the one spending the money these days.

The upshot is, that while I’m not necessarily convinced we’ve seen the end of the fallout from a sluggish 2013, I think these particular liquidations are largely the result of an evolving and highly competitive women’s apparel marketplace, rather than broader retail and economic issues. The emergence of fast fashion chains like H&M and Uniqlo that have been doing so well is certainly not helping brands that were barely managing to hang on.

While more liquidations might not be on tap, I think we are likely to see plenty of store closings in 2014. Radio Shack has already announced the closing of 1,100 stores, and two big mergers — the Office Max/Office Depot merger and the Albertsons/Safeway union — are going to contribute to a number of new vacancies in markets where site/store redundancies will make closure inevitable. In addition, there simply aren’t a large number of new box concepts, and that scarcity is likely to limit the re-use-ability of some of those spaces. It wouldn’t surprise me to see them reused for a non-retail function such as medical.

An interesting article I read recently on www.al.com reviews the “10 most troubled retailers in 2014”, and that list includes several of the other brands that I see as more likely than not to close some stores and engage in some repositioning in 2014. I’ve talked about some of those brands more than once in this space — Best Buy, Barnes & Noble, JC Penney and Sears — but there were also a couple of names that surprised me somewhat. One of those is American Apparel, which I think has a lot going for it in terms of its ability to appeal to a younger demographic, but is saddled with significant debt. Another name that surprised me was Brookstone, although the more I thought about it, perhaps I shouldn’t have been so surprised, considering the fate of former Brookstone competitor Sharper Image. In both cases, I suspect that, as brands that are more about “want” than “need”, they have been hit a little bit harder than others in the downturn — and I can see how it might be harder and harder for Brookstone to hang on.

I’d love to hear the names that are on your own watch list for 2014. Will the liquidations continue, or will this be the end (for now) of a distressing trend? Share your thoughts below or email me at Jeff@JeffGreenPartners.com to continue the conversation.

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