Children's clothing chain Gymboree has filed for bankruptcy protection, aiming to slash its debts and close hundreds of stores amid crushing pressure on retailers.
Gymboree said it plans to remain in business but will close 375 to 450 of its 1,281 stores in filing for a Chapter 11 bankruptcy reorganization. Gymboree employs more than 11,000 people, including 10,500 hourly workers.
The bankruptcy was widely expected after Gymboree refused to pay some of its bills in recent months, placing the retailer on a collision course with creditors. The retailer said in its filing late Sunday that it hopes to slash $1 billion of its $1.4 billion in debt and to win approval for its plan by Sept. 24.
"We expect to move through this process quickly and emerge as a stronger organization that is better positioned in today's evolving retail landscape, with the right size store footprint and greater financial flexibility to invest in Gymboree's long-term growth," the retailer'sCEO Daniel Griesemer said in a statement.
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Like other retailers, Gymboree buckled amid declining mall traffic, fixed rental costs and online competition. Other mall retailers that have recently succumbed to bankruptcy filings include Payless ShoeSource, Rue21 and The Limited.
Global financial services giant Credit Suisse predicted last week that up to 25% of nation's malls could close by 2022.
As shoppers flock to Amazon and other e-commerce options, online sales represent only 21% of Gymboree's revenue, and its web systems are "dated and unsupported," recently appointed Chief Restructuring Officer James Mesterharm said in a court filing.
Mesterharm also said Gymboree had "struggled against other established brick-and-mortar retailers," including Children's Place and GapKids.
Among other shortcomings, Gymboree failed to innovate quickly, having only recently introduced store email, analytics and tablet computers to help employees do their jobs.
The turmoil also resulted in recent leadership changes. The company's CEO since 2013, Mark Breitbard, resigned April 3. His permanent replacement, Daniel Griesemer, was appointed May 22. Upon filing for bankruptcy, the company announced the exit of Chief Financial Officer Andy North and the appointment of interim CFO Liyuan Woo, a consultant at restructuring firm AlixPartners.
The company declined to make executives available to comment and did not release a list of store closures.
The bankruptcy represents a bitter outcome for Gymboree owner Bain Capital Private Equity, which acquired the retailer for $1.8 billion in 2010 and launched a major global expansion.
Still, Gymboree posted a profit before interest, taxes, depreciation, and amortization of $71 million in 2016, down from $94 million in 2015.
Filing for bankruptcy while still profitable could give Gymboree a shot at finding a sustainable path forward. The company said it had secured a deal with certain secured lenders to restructure its debts and reemerge from bankruptcy, an accord that would require a federal bankruptcy judge's approval.
Founded in San Francisco in 1976 as a program devoted to nurturing child learning through playtime with parents, Gymboree started its first store in 1986 and now operates stores worldwide under three brands: Gymboree, upscale chain Janie & Jack and value-focused Crazy 8.
The company's fiscal distress is particularly problematic for mall owners Simon Property Group and GGP, formerly General Growth Properties, which collectively control 35% of Gymboree's U.S. real estate space.
Investor concern over Gymboree's future worsened when the company disclosed that it had missed a June 1 payment on senior notes due in 2018.
Gymboree also was among 22 companies that a June 7 report by rating giant Moody's Investors Service characterized as distressed retailers. The rating that Moody's assigned to Gymboree's debt is far below investment grade.
Similarly, a previous Moody's report on distressed retailers issued in March attributed Gymboree's low rating to "the company's high debt burden and weak credit metrics stemming from the 2010 acquisition of the company by affiliates of Bain Capital and subsequent weak operating performance."
Noting that Gymboree faced approaching maturities of an asset-based revolving loan in December 2017 and a secured term loan in February 2018, the report said refinancing the debts "could be challenging."
"Thus, the risk of default, including the potential for a distressed exchange-type restructuring, is very high," the March report said.