BCBG Max Azria Starts Closing Stores After Filing for Bankruptcy Protection

BCBG Max Azria, the Los Angeles brand that filed for bankruptcy protection in late February, has begun to shutter more than half the stores it operates in the United States.

In bankruptcy filings, the venerated contemporary brand, which has been a major force in the Los Angeles fashion industry for nearly 30 years, said it was rejecting a number of store leases and closing 120 unprofitable stores that racked up $10 million in losses during fiscal 2016.

These stores made up 63 percent of BCBG’s total losses from retail locations with negative contribution margins, the company said in U.S. Bankruptcy Court filings in New York.

Filing for bankruptcy protection is one way retailers can exit their store leases and is being used increasingly as retail chains such as The Wet Seal, The Limited and American Apparel experience financial troubles after operating too many stores at a time when more shoppers headed to e-commerce sites to make their purchases.

Most of the BCBG Max Azria stores being shuttered are stand-alone BCBG Max Azria and premium outlet stores but a handful are Hervé Leger stores, a French brand acquired years ago by BCBG Max Azria. The company’s 276 stores within stores will continue to operate, and 71 BCBG locations will remain open.

At the shuttered outposts, going-out-of-business sales will conclude on April 30 and are expected to generate $20 million in net revenues, court documents said. The liquidation sales are being conducted by Hilco Merchant Resources and Gordon Brothers.

In Southern California, BCBG Max Azria outposts destined for the boneyard include the BCBG and Hervé Leger stores on Rodeo Drive in Beverly Hills as well as locations at Del Amo Fashion Center in Torrance, Calif., Westside Pavilion in West Los Angeles; Glendale Galleria, The Shops at Mission Viejo, La Cumbre Plaza in Santa Barbara and Westfield Horton Plaza in San Diego. A BCBGeneration store at the Westfield Santa Anita mall will also close. Fifty outlet stores—including five in Northern California—are scheduled for closure.

Southern California locations staying open include stores at the Beverly Center, Santa Monica Place, Westfield Fashion Square in Sherman Oaks, Plaza El Segundo, Fashion Island in Newport Beach and Fashion Valley in San Diego as well as the outlet store at the Citadel Outlets near Los Angeles.

BCBG Max Azria Group filed for Chapter 11 bankruptcy protection on Feb. 28 with between $100 million and $500 million in assets and between $500 million and $1 billion in deficits.

As part of its turnaround plan, the company said it would close the bulk of its 191 stores in the United States and dozens of outposts in Europe and Asia.

In addition, the company, founded in 1989 by Max Azria, has been laying off scores of employees. Some 123 workers were let go last November and another 116 were given notice on March 13 that their layoffs would be effective on May 11.

One year ago, Max Azria was relieved of his duties as chief executive officer and replaced by interim CEO Marty Staff.

In early March, Lubov Azria, Max Azria’s wife, was ousted as the chief creative officer and replaced by Bernd Kroeber, who had been the vice president of design for BCBGeneration—the company’s label for younger consumers.

Max and Lubov Azria have filed a lawsuit against the fashion house, maintaining that Lubov was illegally dismissed and should have received a $7 million golden parachute payout. Lubov Azria’s contract included an annual $2.15 million base salary, an $80,000 a year wardrobe allowance, $3,000 a month for an automobile lease and an annual driver allowance of $50,000.

The Lubovs contend she signed an employment contract guaranteeing her long-time employment that was part of an out-of-court restructuring agreement in 2015 with investors, including affiliates of Guggenheim Partners Investment Management. The restructuring agreement reduced the Azria’s 100 percent ownership of the fashion house to 20 percent.

BCBG maintains it is not required to make a $7 million golden parachute payment to Lubov Azria and believes her dismissal was “consistent with the contract’s language as well as the sound exercise of business judgment,” the company said in court filings.

Guggenheim Partners and affiliates have outstanding loans of more than $324.4 million to BCBG Max Azria and now own 80 percent of the apparel company’s common equity.