Illustration: Jovanna Tosello

Pier 1 May Be the Saddest Story of This Bankruptcy Boom

Why J. Crew and Chuck E. Cheese aren’t disappearing, but the retailer behind the papasan chair is

Somewhere around April this year, production of Pier 1 Imports’ famous papasan chairs ceased.

So did everything else in the retailer’s manufacturing supply chain, as the company discontinued all purchase orders early that month. “We didn’t want to impact our vendors by having product in production that we weren’t gonna take,” chief executive Robert Riesbeck tells Marker. Pier 1 will sell the papasan chairs and other products in its stores and distribution centers, aiming to clear every last item in by the fall. And that will be that. The retailer, a familiar presence in strip malls and shopping centers for decades, is liquidating.

A slew of household-name businesses have declared bankruptcy since pandemic-related shutdowns beginning in March gutted the American economy. It’s happened across categories. J. Crew, J.C. Penney, Lucky, Chuck E. Cheese, Hertz, Gold’s Gym, GNC, Neiman Marcus, Le Pain Quotidien, the largest Pizza Hut franchisee, and the list goes on. It’s widely assumed this is just the beginning.

The public square of social media lately has been full of nostalgic and emotional laments for their most adored (and sometimes, maligned) brands seemingly evaporating into thin air: “Well, La Pain Quotidien, I will miss you.” “JCrew bankrupt. RIP barn jackets and heather sweaters.” “Chuck E. Cheese just filed for chapter 11. The end of an era.” Others are less sentimental, but just as definitive: “The end of J. Crew was inevitable,” Jezebel declared.

But in reality, these bankruptcies do not mean that all of these brands will simply disappear. It’s not likely that we will wake up soon to a world with no J. Crew or Pizza Hut. Chapter 11 has often been misconstrued by the public as immediate and dramatic confirmation that a company is shutting down altogether — as happened in recent years with Toys R Us, Barneys, and Payless Shoes. In reality, Chapter 11 is a financial tool that can buy a distressed company a second chance: The bankruptcy process gives it the opportunity to rejigger its debt arrangements, slash costs, restructure real estate and other commitments, agree to new ownership, and carry on in some new and improved version (albeit a probably smaller one).

The end of Pier 1 as we know it is partly a classic and timeless tale of why a business — any business — rises and falls, how bankruptcy protection works, and what happens when it doesn’t.

And that, in fact, was Pier 1’s plan. But sometimes, reorganizing doesn’t work. Sometimes, nobody is willing to accept the financial risk of helping an entity try a do-over. Sometimes it’s better to just sell every last asset — from the inventory to the intellectual property to the office furniture — and use the proceeds to give creditors whatever money that process produces. Sometimes it seems better to just give up.

That’s what is now happening to Pier 1. The company was already vulnerable before the pandemic arrived. It filed for Chapter 11 protection on February 17, and its declaration to the bankruptcy court focused on the already familiar “retail apocalypse” stemming from a consumer landscape reshaped by the long rise of the internet and other factors. At that time — all the way back in February — government officials were still positioning the coronavirus as a problem playing out overseas, and the filing mentioned it only in passing, as an inventory-management issue affecting Chinese factories.

In that world, Pier 1 had a plan to survive. It would be painful — closing nearly half the chain’s existing locations and consolidating distribution centers, leading to significant layoffs — but in combination with other strategic recalibrations, it could work. “We believed we had a business that had gotten turned around, and we were headed in the right direction,” CEO Riesbeck says. “We strongly believed that Pier 1 has a place.”

But then, about a month later, Pier 1 had to close all its locations, just like most every “non-essential” business in the country. As the shutdown lingered, the company’s options evaporated. And on May 29 it announced what had slowly become inevitable: Instead of reorganizing in a new, leaner form, it would wind down operations completely. The auction of its intellectual property will conclude this month; the process of liquidating all existing merchandise — including the last of the extant papasan chairs — and closing all remaining stores should conclude by the fall.

The end of Pier 1 as we know it is partly a classic and timeless tale of why a business — any business — rises and falls, how bankruptcy protection works, and what happens when it doesn’t. But it’s also a story unique to our moment: how a singular lightning-bolt circumstance that no business leader could control rewrites a company’s destiny. Pier 1, as an example of both narratives, opens a window on the potential futures that many businesses, large and small, are staring down right now.

Officially dating to 1962, Pier 1 grew from a single store (called Cost Plus at the time), in San Mateo, California. It catered to then-youthful “post-World War II baby boomers looking for beanbag chairs, love beads and incense,” as a company history puts it. The early inventory also included rattan furniture, candlesticks, rugs, and other imports bought abroad on the cheap, and still seeming like bargains even when marked up. That single store was bought by Tandy Corp. (which later became famous for its Radio Shack chain), and Tandy treasurer Luther Henderson took over, spotted the market potential, and expanded its operations, serving as its chairman for the next couple of decades.

New stores spread through the 1960s, targeting adventurous young customers. The presentation was geared toward wandering around discovering things — like “an old grocery store,” as a subsequent CEO said. That general vibe hung on for years. Even today, Christine Murray, Pier One’s chief human resources officer, says, veteran employees recall hauling merchandise off delivery trucks and improvising its display, using “baskets hanging from ceilings, rugs piled in the corner, that you’d flip through like at a bazaar.” This offered customers “that thrill of the treasure hunt,” Murray says. “Just kind of wander around, bump into things, find things.”

In 1970 the company, by then headquartered in Fort Worth, went public. While the chain had its ups and downs over the following two decades, its general trajectory was toward growth — it had 265 stores by 1985 — and it became a retail mainstay. That “bazaar” feel evolved into a more streamlined formula, but there was still something, if not quite exotic, then at least distinct about the merchandise mix.

The chain had a particularly strong run in the wake of 9/11. The next few years were a time of “nesting” and “thinking about what’s important,” Murray says. “Pier One just fit into that so well — people wanting to be part of something that had a character and a heritage. And there was a nostalgia with the brand.” In its heyday, the Pier 1 product mix still felt special, she continues — the “import” idea retained the sense that someone had taken care to discover these items in far-flung markets, things “you weren’t going to find mass-produced everywhere.” The store was “a destination.” In 2003, it opened its 1,000th location in North America.

Newer home décor brands from West Elm to Restoration Hardware offered fresher looks, while big-box retailers like Target offered cheaper and more convenient alternatives to fans of Pier 1’s aesthetic.

But within a few years, Pier 1 started to plateau, and began to second-guess itself. Was the product too stodgy? Did it need modernizing? When the mix changed, loyal customers balked. New management tried to balance an evolving mix with that nostalgic sense of Pier 1 as a serendipitous bazaar, while newer entrants like Anthropologie were doing a better job at it. As the economy clawed out of the Great Recession, Pier 1 pared back its infrastructure — dropping a kids-focused division, its catalog business, and outlet arm, even selling its home office and renting back the floors it needed.

This helped put Pier 1 on stable footing for several more years. But the retail world was changing, and by the late 2010s it was increasingly clear that Pier 1 simply wasn’t keeping up. The whole idea of the “imported” goods became ho-hum. Newer home décor brands from West Elm to Restoration Hardware offered fresher looks, while big-box retailers like Target offered cheaper and more convenient alternatives to fans of Pier 1’s aesthetic. And, of course, more sales were shifting online, not just to Amazon but to specialty players like Wayfair.

Pier 1’s bankruptcy filing described the company’s response as “a mass-market merchandizing strategy based on high volume, low price, lower margin commodity items.” This “failed to resonate with core customers,” or to attract sufficient new ones. Inventory piled up. And it became clear that Pier 1 simply had too many physical locations — 1,050 at its peak, with about 250 located within five to 10 miles of another Pier 1, according to Riesbeck.

By late 2019, the chain was in serious trouble, reporting its losses had nearly doubled in the prior year, with annual sales down 14%. Riesbeck, who had joined Pier 1 as its CFO in July of that year, was named its new CEO in November. Previously, he’d served as chief financial officer and the CEO of appliances and electronics chain HHGregg, steering the electronics and appliance chain through bankruptcy. After that he was CFO of FullBeauty, which also reorganized under Chapter 11, in a proceeding that was notable for being orderly and quick. By putting a bankruptcy veteran at the helm, Pier 1 had made it look fairly clear what was next.

There’s a lot of bankruptcy in the news these days, and that’s probably going to remain the case for a while. But that’s not because every vulnerable company will be vaporized — it’s because many are scrambling to avoid that fate.

“The thesis behind the bankruptcy code is to support businesses reorganizing and going forward,” says Josh Sussberg, a partner in Kirkland & Ellis, representing Pier 1 in its Chapter 11 process, and a key player in that firm’s increasingly busy bankruptcy practice. Going bankrupt essentially means that a business concedes that it can longer meet its debt and other financial obligations and seeks a court-supervised process giving it some form of relief — a way to start over.

Huge debt obligations stemming from leveraged buyouts (Hertz) and private equity deals (J. Crew, Neiman Marcus) have been a recurring theme in filings this year, as servicing billions of dollars in debt can be crippling without cash flow. Debt relief in a bankruptcy process can range from reduction to timeline-extension to cancellation of some or all of those debts. The bankruptcy code offers various other legal tools and options to make a comeback possible: paths to revise or get out of burdensome lease agreements, union contracts, and so on. The underlying principle is to find a way for a business to continue — and ultimately provide as much value as possible to its creditors.

A Chapter 11 process — which applies to Pier 1 and pretty much all the headlines you’ve been seeing — turns on the concept of the “debtor in possession,” which is a fancy way of saying that the existing management and the board continue to run the show, making decisions around a firm’s restructuring. Creditors have a voice in the process (via their own counsel) and can move to exert influence if they believe management is making imprudent decisions. So specific outcomes depend on the investors and other stakeholders, as well as broader circumstances. “Chapter 11 provides at least a platform to see if there’s a reason for a company to exist,” Sussberg says.

In Pier 1’s case, the company bankruptcy process beginning in mid-February entered it into an agreement with the term lenders that laid out a process with a few potential outcomes. One was a reorganization that the lenders supported, converting debt to equity and providing additional capital. Another was a sale of the business to third parties able to invest capital that made lenders comfortable. Some combination of those options could also work.

“I did not expect to lose every potential financial investor that we’d had on speed dial. I really just did not think that nobody would want this brand.”

Management is supposed to engineer the details (cutting expenses, striking specific investment deals) that all parties can accept. If creditors lose faith that management is acting in a way that maximizes value for all concerned, they can move to have the proceedings converted into a Chapter 7 process, with an independent trustee taking charge instead of management or the board. At that point, it’s basically a manic grab at whatever money can be wrung from existing assets; frequently, lawsuits follow and drag on for years. “Think of Chapter 7 as a complete fire sale,” says Sussberg.

In its bankruptcy declaration, Pier 1 claimed to have reworked its product mix to satisfy core customers, and built up its e-commerce business, which it said now accounted for 27% of overall revenue. That promising news was paired with harsh austerity: the closure of more than 400 stores, reducing the overall fleet to around 540 locations, and reducing the workforce from around 18,000 to 11,000.

As of early March, “we were well on our way,” Riesbeck says. It had a promising first quarter, the full support of the board, and a strong sense that the company would soon line up new equity holders in the reorganized business (whether that meant current term lenders converting to equity, or new third parties buying in). Since he joined last fall and the company started considering its options, he says, “probably 80 different parties” had expressed various levels of interest.

But as the shutdown continued for four weeks, then five, then six — all interest “dried up,” he says. “I couldn’t get anybody to take a phone call anymore.” A month later, he still sounds slightly shell-shocked. Even when the shutdown kicked in, “I thought we’d be fine, as long as [the stores] didn’t stay closed too long,” he recalls. “I did not expect to lose every potential financial investor that we’d had on speed dial. I really just did not think that nobody would want this brand.”

There is a middle ground between a successful Chapter 11 reorganization and a Chapter 7 fire sale — the third of Pier 1’s set of options: In the absence of the right set of financial arrangements to keep the company going, management could oversee its orderly liquidation. In other words, an unwinding of the business.

In essence, this means the idea of reorganizing is over, and in a very real sense everything must go. Leases are ended, workers are laid off, production contracts are terminated, and inventory is sold off completely; if the company owns a home office or other property, that gets sold, along with the office supplies and furniture, to pay creditors. The brand is auctioned off, too. But in every practical sense, the company you were familiar with simply goes away.

Going-out-of-business sales are in progress at the 540 or so Pier 1 locations that have gradually reopened over the last couple of weeks.

Even before Covid-19, there have been multiple high-profile outcomes like this in recent years. Toys R Us, once a pervasive presence anchoring strip malls across the country, liquidated; somebody bought the intellectual property and launched a new retail experiment, but it’s not the thing you remember. More recently, much the same happened with Barneys — a once-iconic upscale retail space reduced to random jumbles of merchandise sold from sparse shelves and plastic storage bins. And then there’s Payless Shoes. It went through what seemed like an orderly bankruptcy process in 2017, and re-emerged under the control of private equity firm Alden Global Capital. But a subsequent New York Times investigation found that the new managers never really figured out how to get the business back on track, and after a variety of missteps there was a new Chapter 11 filing, and Payless melted down into “a carcass of a company, with no stores in the United States.”

That, to be blunt, is where Pier 1 is headed. Going-out-of-business sales are in progress at the 540 or so Pier 1 locations that have gradually reopened over the last couple of weeks. And sales have been brisk, Riesbeck says. Outdoor furniture, fragrances, candles — along with papasan chairs and its cousin the swingasan — “are selling like crazy,” he says. “It’s the iconic Pier 1 that’s selling. Now, it might be sentimental for some people, because they think the brand’s never gonna survive, but those items are selling.”

Closures are worked out store by store, in coordination with landlords. All should be shuttered by October. As its remaining distribution centers empty — which should happen in July and August — the company will exit those leases.

Pier 1’s intellectual property — its patents, trademarks, brand identity have been packaged with its website and e-commerce store, as well as customer and vendor data. (This means the new owner will get all the specs for Pier 1 staples, and the connections to restart production.) Any brick-and-mortar presence would be up to the new owner.

The company held out as long as it could during the shutdown, but in its weakened state, the “cash bleed” became overwhelming.

A possible new owner is now in the running: In a July 5 court filing, Pier 1 disclosed an agreement to sell the e-commerce business and related assets for approximately $20 million to Retail Ecommerce Ventures. It’s an entity owned by Alex Mehr, previously the co-founder of dating site Zoosk, and Tai Lopez, an investor and online media personality; last year the company acquired the intellectual property of DressBarn, following that chain’s liquidation. (Mehr confirmed the Pier 1 deal in an email, but declined to elaborate on future plans.) The acquisition would need to be approved by the bankruptcy court, and Pier 1 and its lawyers and investment banker can continue to consider offers over the course of the next week. Pier 1, citing the ongoing auction process, declined further comment. The lenders and unsecured creditors committee will also weigh in; a final decision is expected mid July.

Pier 1 has vacated its Fort Worth headquarters. A shrunken version of the corporate staff works mostly from home, with some — including Murray, the HR director — putting in occasional in-person time in a new makeshift home base in a secondary property previously used for photo shoots. As a member of the corporate leadership team, Murray has understood since roughly mid-April that the company was unlikely to survive. “There’s only so long you can not have revenue, when you’re already bankrupt,” she says. But it’s been a grueling process just the same: “There’s no business school where a liquidation and a pandemic is one of the projects.”

The company held out as long as it could during the shutdown, but in its weakened state, the “cash bleed” became overwhelming. The low point, and moment of truth, came on Monday, May 18, when Riesbeck led a company-wide conference call, announcing to thousands of workers that it was all over, and all their jobs would end. “That was horrible,” he says simply. “The personal side of it was very, very tough.” Now Murray and her colleagues have put together an ad-hoc outplacement service of sorts, sharing job leads and résumés and LinkedIn profiles.

“It’s the busiest and saddest time I’ve had,” says Sussberg, the bankruptcy lawyer, whose clients have also included Macy’s, JCPenney, and Forever 21, among many others. Retail, already disrupted by technology, is a huge employer being severely tested by the pandemic. And early indicators suggest that investors are turning a cold shoulder to brick-and-mortar brands, even compared to other hard-hit sectors like restaurants. When the dust finally settles it will “look very different,” he says. “This is creating a massive amount of dysfunction.”

Riesbeck, now executing this third consecutive bankruptcy proceeding, concedes that, perhaps, he has a temperament for this kind of distinctly unpleasant work. But “this one’s clearly different,” he says. “Nobody has ever tried to pull a company out of bankruptcy during a pandemic and make it successful.” The new owner of Pier 1’s assets is getting a strong brand and a solid e-commerce business, he reiterates — as if he still can’t quite believe it didn’t work out. “My goal was to turn this company around and have it be a viable entity going forward,” he says, pausing to laugh drily. “Life throws things at you.”

Author The Art of Noticing. Related newsletter at https://robwalker.substack.com

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