RTW Retailwinds Teetering for Too Long

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A re-branding, an inclusive approach and Eva Mendes couldn’t save RTW Retailwinds.

The mid-tier women’s fashion retailer, formerly called New York & Co., filed for Chapter 11 bankruptcy on Monday, and has begun liquidating many of its stores and put itself up for sale.

The Chapter 11, filed in the U.S. Bankruptcy Court of the District of New Jersey, had been expected for weeks. RTW joins the nation’s growing list of recent retail bankruptcies, including Neiman Marcus, J. Crew Group, J.C. Penney and Pier 1.

RTW expects to close a significant portion, if not all, of its brick-and-mortar stores and has launched a liquidation process while also continuing to reopen certain stores that were temporarily closed due to the pandemic.

In addition to the New York & Co. stores and the Fashion to Figure plus-size units, RTW operates Kate Hudson’s Happy x Nature collection. New York & Co. has been known for its curvy Eva Mendes collection emphasizing dresses.

RTW said it is “evaluating any and all strategic alternatives, including the potential sale of its e-commerce business and related intellectual property.”

“The combined effects of a challenging retail environment coupled with the impact of the COVID-19 pandemic have caused significant financial distress on our business, and we expect it to continue to do so in the future,” said Sheamus Toal, chief executive officer and chief financial officer of RTW Retailwinds. “As a result, we believe that a restructuring of our liabilities and a potential sale of the business or portions of the business is the best path forward to unlock value. I would like to thank all of our associates, customers and business partners for their dedication and continued support through these unprecedented times.”

Even with those popular $100 Eva Mendes palazzo pants and maxi dresses, reduced down to $60, RTW Retailwinds couldn’t get the margins and momentum to compete in a wildly promotional, competitive and crowded women’s specialty retail sector. COVID-19 seemed a final blow, with all 387 stores closed at one time, and a major cash burn.

It didn’t help that in the middle of the pandemic, turbulence swept through the c-suite and boardroom, with Greg Scott leaving as ceo in April after nine years on the job. He said he returned to Los Angeles “for personal reasons.”

Traci Inglis, president and chief marketing and customer officer, was named the next ceo but she never assumed the role. Instead, she resigned, became a consultant to the company through Aug. 31, and Toal was tapped as ceo while continuing as cfo.

Four directors recently left the board — Miki Racine Berardelli, Brenda Freeman, Christy Haubegger, and John Howard, ceo of Irving Place Capital, a major investor in RTW who invested in the chain years ago and stuck with it through even the Great Recession.

Yet RTW had been hitting headwinds for years. The rise of fast-fashion, value-fashion, outlets, offpricers and online offerings drew customers away from and put promotional pressures on the New York & Co. stores. In its annual report for 2019 released last month, RTW cited “difficulty maintaining and gaining market share.”

Retail experts cite a long history of lackluster performance by a retail brand that lacked distinction but tried to gain an edge by building a portfolio of celebrity-endorsed collections, developing a multibrand platform, and venturing into plus sizes and subscription rental services.

Celebrity collections were first established with Mendes in 2013, then Gabrielle Union in 2017, and last year with Kate Hudson, who has been “brand ambassador” for RTW’s Soho Jeans line and collaborates with RTW on her own collection called Happy x Nature. The company also sells merchandise under the New York & Co. label and sub-brands such as 7th Avenue Design Studio.

In April 2019, a lingerie brand called Uncommon Sense was introduced to the assortment. It was dropped after a few months based on a decision to focus on Happy x Nature, the New York & Co. brand and other owned-brands.

Hopes for a turnaround emerged in November 2018 when the corporate name changed from New York & Co. to RTW Retailwinds, signaling the company’s reinvention from a mono-brand to a multibrand “lifestyle” retail platform, with a stable of celebrity collections. “We are looking at what the other opportunities are outside of New York & Co.,” former ceo Scott told WWD at the time.

There were also high expectations for Fashion to Figure, the $20 million plus-size online and brick-and-mortar retailer, founded by the grandsons of the late Lena Bryant of Lane Bryant and purchased out of bankruptcy by New York & Co. in November 2017. Fashion to Figure tapped actress and singer Danielle Brooks as its first brand ambassador celebrity tie-in.

After some spurts of profitability, the business began to falter again. Neither Fashion to Figure nor the celebrity strategy ramped up fast enough to achieve much-needed economies of scale and consumer recognition for a sustained turnaround.

“Because their stores were large, and because of the deep, deep competition in lower-price women’s apparel, the company couldn’t get productivity up to where it needed to be,” said Janet Kloppenburg, president of JJK Research Associates Inc. “They were never able to grow the AUR [average unit retail price] because of pricing pressures from discounters and offpricers, and because for their customer base — working moms with middle to lower incomes — apparel budgets are lower priorities.”

RTW Retailwinds’ celebrity strategy, led by Scott, “was working for them,” Kloppenburg said. “That was an avenue for growth, but it probably never got to a level that offset the low productivity and margin erosion experienced in their other private label sportswear.” Also, celebrity endorsement fees would have taken a bite out of the profitability.

“New York & Co. has been a troubled brand for a long time. It has struggled to find its niche in the world of fashion,” said Craig Johnson, president of Customer Growth Partners. “Did anyone know what the brand stood for? That was its biggest challenge, to come up with something distinct. They were not getting any traction, but when you are a relatively small company, it’s hard to gain momentum and economies of scale. It was OK that they gave the celebrity strategy a try but it’s not a proven path to success unless you have a really well-known name like a Martha Stewart in home that provides a value-add for customers.”

In the company’s latest annual report, “substantial doubt about the ability to continue as a going concern” was cited. COVID-19 “adversely affected the company’s business operations, store traffic, employee availability, financial condition, liquidity and cash flow and is expected to continue to negatively impact the business which could require the company to restructure its obligations in a manner that would significantly impact its shareholders…,” it added.

The report also cited intentions to shift from a predominantly brick-and-mortar retailer to being digitally dominant, and to close 150 stores over the next 18 months. Last year, digital sales accounted for 34 percent of the total volume. The company operates nyandcompany.com, fashiontofigure.com, happyxnature.com, as well as two rental subscription businesses, nyandcompanycloset.com and fashiontofigurecloset.com.

The report said that If the company sought protection under bankruptcy, it could close all of its stores. Since the beginning of fiscal year 2014, the company has closed 179 stores. Currently, the group operates 387 stores, including outlets.

On June 19, RTW Retailwinds received notice from the New York Stock Exchange that it could be delisted from the exchange as a result of the company’s average market capitalization over a consecutive 30 trading-day period falling under $50 million. At the time, the company said it planned to notify the NYSE by July 6 whether it intended to correct the deficiency or not. Under NYSE rules, to avoid delisting, the company has 45 days from the receipt of the notice to submit a business plan to bring it into compliance, and 18 months to meet the capitalization requirement.

Another red flag was the ongoing affiliation with L Brands, another troubled specialty retailer operating the struggling Victoria’s Secret and the healthier Bath & Body Works businesses. L Brands bought RTW in 1985 when it was still called Lerner Shops, changed the name to Lerner New York to capitalize on a private label, and sold the company to Bear Stearns — where Howard then worked — in 2002, which took RTW public in 2004. L Brands continues to provide RTW with warehousing and distribution services. All of RTW’s merchandise has been received, processed, warehoused and distributed through L Brands’ distribution center in Columbus, Ohio.

The company was founded in 1918 in New York City under the name Lerner Shops by the Lerner brothers, who were blouse manufacturers.

Last year, the company had a net loss of $61.6 million, compared to net income of $4.2 million in 2018. Net sales were $827 million compared to $893.2 million in 2018. Comparable store sales decreased 5.4 percent. The company received default notices from various landlords, lenders and vendors for non-payment. On the basis of adjusted earnings before interest, taxes, depreciation, and amortization the company lost $14.7 million last year, as compared to an adjusted profit of $33.2 million in 2018.

If the company liquidates completely, almost 5,000 workers would lose their jobs. There are 1,413 full-time employees and 3,558 part-time workers, who are primarily store associates.

“We stopped tracking Retailwinds,” said Johnson. “The numbers were so small. We track other troubled companies like Express and Chico’s where there is more critical mass. You got to have that.”

As previously announced, on July 2 the company entered into an amended and restated loan and security agreement and joinder with Wells Fargo Bank, National Association, as administrative agent and lender. The company had said it would repay the approximately $12.7 million outstanding balance under the loan agreement by Aug. 31.

Monday’s bankruptcy filing lists RTW’s total assets at $405,356,610 and total debt at $449,962,395.

IPC NYCG LLC, which is Irving Place Capital run by Howard, holds 48.5 percent of the securities. Paradigm Capital Management owns 7.04 percent.

The 10 creditors with the largest unsecured claims are: Easy Fashion Macao Commercial Offshore Ltd., $28.04 million; MGF Sourcing U.S., $16.54 million; Li & Fung Trading Ltd., $8.14 million; Amos Eastern Apparel Inc., $4.73 million; Sunrise Apparel Group LLC., $3.68 million; F.O.B. Garments Limited, $1.5 million; VNO Rent Receipt, $1.37 million; LLS, $1.32 million; Fortune Footwear, $1.29 million, and Allied Printing, $1.28 million.

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