The Children’s Place files Chapter 11, seeks buyer by year-end

The Children’s Place filed for Chapter 11 on Sunday in the U.S. Bankruptcy Court of New Jersey, with over $881 million in debt and about $742 million in assets, according to court documents.

The filing came days after The Children’s Place told regulators that executives who were major financial backers had left, the company said. About 500 North American stores and the company’s website remain open, although store-closing sales began last week, according to court documents.

The retailer sells through two digital storefronts and wholesale marketplaces including Amazon. Its brands include The Children’s Place and Gymboree.

What does this change for shoppers?

For shoppers, the immediate change is a sale process; stores and the website remain open despite store-closing sales that began last week. The longer answer is less tidy. Court documents show bids that could preserve the company or sell substantially all its assets.

“For nearly 60 years, The Children’s Place has supported growing families with apparel that customers have come to know and love,” said Rudy Morando, the company’s co-chief restructuring officer. He added: “We recognize the significance of this development for our employees, customers, vendors, and other partners, and we are committed to conducting an efficient and transparent sale process.”

According to court documents, the sale process sets out five terms:

• Goal: Sell the business by the end of the year.
• Bid deadline: Dec. 9.
• Interest: Nine proposals received, described as “not currently actionable.”
• Financing plan: A new term loan facility provided by existing secured lenders.
• Status: Discussions remain ongoing.

“Today’s announcement marks an important step in our efforts to secure the best path forward for The Children’s Place,” Morando said.

Of the nine proposals, six are for going-concern and intellectual-property-related transactions, while three are equity-liquidation proposals involving substantially all the retailer’s assets, court documents said. The company also received three fee-based bids to liquidate The Children’s Place inventory and certain assets, per court documents. A stalking-horse bid due in about a week would set the price other proposals must beat.

A recent expansion meets weaker demand

The company was founded in 1969, the same year as The Gap, according to Dive. It was still expanding quite recently, opening 19 stores in the second quarter this year. Financial filings and its investor site show that it sells through 10 franchises, various wholesale partnerships and social media channels in 13 international markets.

Demand for value-priced children’s clothing declined in recent years. In court documents, the company said that the decline, plus inflation, tariffs and intensifying competition in the space, “have driven a sustained decline in net sales and profitability.”

Competition squeezes sales and the balance sheet

GlobalData Managing Director Neil Saunders said Target, Walmart, Amazon and off-price retailers have improved the quality and design of their children’s clothing and offer it at lower prices. All of those retailers have taken share in the market, he said.

Saunders also said The Children’s Place made it easier for shoppers to go elsewhere when it raised the threshold for free shipping on online orders. He called the financial decisions after a 2021 sales boom dubious. The company bought back shares and added to an already hefty debt load. “That proved to be a huge mistake, especially as the fortunes of the company changed in 2022 and beyond,” Saunders said.

Dive reported that an infusion of funds from Saudi investment firm Mithaq Capital, when it took a majority ownership stake two years ago, helped for a time. At this point, The Children’s Place needs “a complete financial restructuring and overhaul,” Saunders said.

Who may buy the brands?

Saunders sees likely interest in acquiring The Children’s Place and Gymboree brands, including their e-commerce operations and possibly some stores. “This will most likely come from the big brand conglomerates who will want to integrate Children’s Place into their wider businesses,” he said.

Last month, Debtwire analysts reported that The Children’s Place was mulling bankruptcy and a sale and listed J.C. Penney owner Catalyst Brands among potential bidders. The report said Catalyst is interested in the retailer’s intellectual property and about 200 locations.

Catalyst did not immediately return a request for comment, and The Children’s Place declined to comment. Dive also reported that several brands in Catalyst’s portfolio, including J.C. Penney, Brooks Brothers, Aeropostale and Lucky, were acquired through a bankruptcy process.

The next hard deadlines

The next hard deadlines are a stalking-horse bid in about a week and bids due Dec. 9. The company still targets a sale by year-end. The process will determine whether about 500 stores, two digital storefronts and the Gymboree brand stay together or get carved up. The company has set the clock; liquidation is one of the bidders.