Claire’s gets pierced by private equity — files for Chapter 11
After more than 10 years of struggling to stay in business, Claire’s, the finest purveyor of 50-stud earring packs, filed for Chapter 11 bankruptcy.
But don’t go rushing to stock up on mood rings just yet — they’re not planning on going out of business.
Instead, they hope to use the bankruptcy filing to rebound and reduce their $2.1B debt 90% by pivoting to online retail and using their brick and mortar locations solely as ear piercing parlors, which they believe will bring customers in-store.
Claire’s rode the private equity train to the brink of bankruptcy
Back in 2007, the private equity firm Apollo Management took the piercing palace private via a $3.1B leveraged buyout (a deal in which the acquirer finances a buyout with borrowed money and uses the purchased company’s assets as collateral).
Because of high interest rates and the chain’s lukewarm cash flows, Claire’s hasn’t been able to take off the gaudy debt choker that was fastened around their neck over 10 years ago.
They’re not the first company to fall prey to this tactic
Toys R Us suffered the same fate after a leveraged buyout in 2005 that cost them $183M in advisory fees to its private owners.
Last year, over 50 US retailers filed for bankruptcy after rolling over their debt from their leveraged buyouts. And the retail merchant of death shows no signs of slowing: Analysts predict another $6B in retail debt will mature this year alone.