Bebe Stores Resolves Store Leases and Skirts Bankruptcy

Retail

As of Thursday, May 11, 2017

Several weeks ago, Bebe Stores notified its landlords it was planning to close all 168 of its stores by the end of May because they weren’t that profitable.

Getting out of a store lease isn’t easy. Most landlords don’t want to break long-term leases, so retailers resort to declaring bankruptcy to be able to walk away from the contracts that bind them. Mall owners then end up with very little money in their pockets.

But Reuters is reporting that Bebe Stores has negotiated deals with its landlords—primarily mall owners Simon Property Group Inc. and General Growth Properties—to shutter its stores.

Neither Bebe Stores nor the malls would comment about the news. An email sent to Bebe President and Interim Chief Financial Officer Walter Parks was not returned.

Simon Property Group spokesman Les Morris said the mall owner would not comment on the transaction. Kevin Berry, senior vice president of investment and public relations for General Growth Properties, said the company doesn’t publicly discuss any business transactions involving its tenants.

But in a recent filing with the Securities and Exchange Commission, Bebe Stores said it hoped to close its locations by the end of May at a cost of $20 million.

Stories about financial troubles surfaced in March when Bebe, headquartered in Brisbane, Calif., said it was exploring strategic alternatives and retained B. Riley & Co. as its financial adviser. It also hired a real estate adviser to determine what to do with its store leases.

All along, Bebe said its goal was to get rid of its stores and concentrate on online sales. One month later, the decades-old retail chain, which caters to young contemporary customers, notified the California Department of Employment Development that it planned to lay off some 700 employees.

About 400 retail workers were given notice as well as 136 workers at Bebe’s headquarters in Brisbane, Calif. Also, 160 workers in a design office in Los Angeles were given pink slips.

Bebe Stores has been running up against hefty financial headwinds in the last couple of years. Its same-store sales had been consistently down for some time. In fiscal 2016, revenues totaled $393.6 million, down from $484.7 million in fiscal 2013.

Despite the drop in revenues, Bebe Stores has not racked up a lot of debt and had about $67 million in cash at the end of 2016.

Last year, Bebe sold nearly half of its brand to Bluestar Alliance, a brand-management company. The move raised $35 million and was intended to help Bebe develop a wholesale licensing business.

For years, Bebe has been a mainstay of the California retail scene. The company was founded in 1976 by Manny Mashouf, who is still Bebe’s chief executive officer.

Bebe Stores is just one of a growing number of retailers who have opted to declare bankruptcy as consumers gravitate more to online shopping and avoid big malls.

BCBG Max Azria in Los Angeles filed for Chapter 11 bankruptcy protection in February, and The Wet Seal, headquartered in Irvine, Calif., closed its store doors earlier this year. In March, Wet Seal sold its brand name in a bankruptcy auction to Gordon Brothers for $3 million.