(Bloomberg)—The day after Toys R Us filed for bankruptcy, CEO Dave Brandon held a press briefing at a store in Times Square. He had one audience in mind: customers. He knew the fate of the chain rested on keeping their confidence.
A few feet from where Brandon was talking about the “dawn of a new day” two Septembers ago, shoppers who thought Toys R Us was already a goner were asking clerks about going-out-of-business sales. It might not have been too late to persuade people otherwise, but the company didn’t do much after that pep rally to refute the idea that the end was nigh. Executives shied away from reporters. The advertising budget was slashed. Sales at stores that weren’t liquidated collapsed. The chain was dead within six months.
How that famous black cloud of bankruptcy was managed holds lessons for Forever 21 Inc., the latest beleaguered retailer working to emerge from the process intact and No. 116 in the 2019 Digital Commerce 360 Top 1000. “The message needs to be really direct—one that says we are still in business and we are still open,” says Ed Sanz, managing partner for ABTV, an adviser to distressed companies. “People don’t understand bankruptcy enough to understand that operations can keep going. It can be a mistake to shut down advertising.”
Retailers used to be able to get away with staying quiet. Not these days, not with trending on Twitter. Within hours of a report about even a potential filing, the internet can be overflowing with dire predictions and snark. Speculation about a Forever 21 bankruptcy in August and then its September filing became an international story. The most-searched phrase on Google for the chain quickly became, “Is Forever 21 going out of business?”
But the company has barely acknowledged that it’s in a massive debt-restructuring and closing a slew of stores, with very rare mentions on its website or social media, where it does the bulk of its marketing. On the day it filed, its Instagram feed featured only clothes, like a shaggy notched-collar jacket for $49. The founding Chang family has steered clear of the media.
All this could be especially troublesome for a brand reliant on notoriously fickle teens and 20-somethings, who have no shortage of replacement options a few taps away.
The company didn’t respond to requests for comment.
Any retailer that sticks with the old playbook of avoiding the topic has its head in the sand, says Chelsea Grayson, who served as CEO for American Apparel and True Religion during parts of their bankruptcy proceedings. “People need to see the CEO out there. They need to constantly be communicating, especially during times of distress. Otherwise it looks like you’re hiding something.”
David’s Bridal, America’s largest wedding retailer, knew this when it filed for bankruptcy last November, especially since the sudden failure in 2017 of Alfred Angelo, a wedding-dress maker and retailer, had flooded the internet with bride-to-be horror stories.
David’s Bridal tailored its marketing and messaging to let customers know it was operating. It mailed pamphlets and sent emails declaring as much. Scott Key, the CEO at the time, repeated the message in a video posted on the website the day after the filing, adding, “we hope to see you soon.”
Some customers bailed, as store visits substantially declined, says Pasha Azadmard, a credit analyst at S&P Global Ratings. But David’s Bridal (No. 557) still exists. Last month, the chain reached a debt deal, including a cash infusion, to avoid a second bankruptcy filing.
Speed is another way to beat the negativity. David’s Bridal hit a goal of emerging from bankruptcy by mid-January—about two months after it filed. In February, Fullbeauty Brands Inc., a women’s plus-size retailer, set a record for the fastest U.S. corporate bankruptcy after taking less than 24 hours to win court approval for its restructuring plan. Fullbeauty could move quickly because it sells only online, so it didn’t have to haggle with landlords and shut outlets.
Forever 21 doesn’t have that luxury. It’s closing most of its locations in Europe and Asia and more than 100 in the U.S. There are signs that the business has deteriorated more than expected as weak sales at still-operating locations are making it harder to secure financing to exit bankruptcy.
Considering the sector’s troubled state, with thinning margins, slowing foot-traffic and ever-increasing competition online, industry watchers are predicting 2020 will be like this year, which saw a host of chains, including Barneys New York Inc. (No. 197) and Payless ShoeSource Inc. (No. 460), go into Chapter 11 reorganization and wind up in liquidation. Sanz says they should take his advice to spend money on delivering the message that bankruptcy doesn’t have to mean the end. “Otherwise, you’re dead.”