Why Retailers Are Filing For Bankruptcy When They Aren’t Yet Broke

by MR Magazine Staff

If you only looked at its profit statement, you might have thought teen-fashion retailer Rue21 was a raging success. After all, it earned $54 million in 2016. But instead of waiting to fall into serious red ink, Rue21 abruptly filed for bankruptcy in May. And it’s not alone. Rue21 is part of the trend of retailers that are filing for Chapter 11 bankruptcy reorganization while still profitable. It’s a survival strategy that could play out during the next couple months among retailers that fared poorly during the critical holiday season. Several national chains survived their brush with death by filing for court protection from their creditors in 2017 even though they might have otherwise looked financially healthy. The trend illustrates the importance of pre-emptive action for retailers that foresee impending doom. “If you see a retailer that is at least nominally in the black” that files for bankruptcy, it’s “almost always going to be because they have a balance sheet that no longer works for the company,” said Jude Gorman, an insolvency expert and general counsel of Reorg Research. Read more at USA Today.