Vitamin World has filed for Chapter 11 bankruptcy to restructure its business, one week after CEO Michael Madden told The Wall Street Journal that the retailer would seek this protection. The privately held vitamins and supplements retailer announced it would close 51 of its 334 stores after it was unable to strike a deal with landlords to renegotiate leases.
In a year full of retail bankruptcies and reorganizations, the Vitamin World news shows that the industry continues to see new casualties, particularly from merchants with a large brick-and-mortar footprint that includes underperforming locations.
Toys ‘R’ Us may be pondering bankruptcy as well, already having hired law firm Kirkland and Ellis to help restructure the roughly $400 million in debt that is due in 2018. There is no guarantee that Toys ‘R’ Us will file for bankruptcy, as the hiring of a law firm often indicates a company will attempt to refinance or restructure its debt without filing for protection. The retailer has noted in regulatory filings that it also hired a financial advisory firm, Lazard, to help the company address its debt and upcoming maturities.
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Tackling this debt load is important for Toys ‘R’ Us, which owes an estimated $3.5 billion over the next three years. Much of this total is a holdover from the chain’s initial buyout by three separate private equity firms. With the holiday season coming up, the retailer also is under immense pressure to give its major vendors, such as Mattel and Hasbro, clarity into its long-term viability.
Vitamin World is in a similar situation to Toys ‘R’ Us when it comes to paying debt, but on a much smaller scale and without the significant financial backing. The retailer owes $14.4 million in accrued interest on secured debt and another $9.5 million on a seller note originating from its 2016 buyout by Centre Lane Partners, a private equity firm. Like many of the companies that fell before them, neither were able to differentiate their product offerings or provide an experience that brings people into the store, while giants such as Amazon and Walmart cut into their businesses.
Debtors for Vitamin World started liquidating the inventory at the 51 closing stores on Sept. 8, and intend to reject such leases as of Sept. 30, 2017. The debtors are further evaluating the leases for additional underperforming locations and will attempt to renegotiate the rent.
Prior to the bankruptcy, Vitamin World already had closed 45 underperforming stores since early 2016, when it brought on RCS Real Estate Advisers to review its “above market rents.” The closures saved the company $2 million, according to court documents.
