How did women’s clothier Chadwick’s emerge from a successful Chapter 11 case? By focusing on its core business and shedding debt.
Many companies attempt to grow too fast by pursuing ambitions in the marketplace. Growth almost certainly involves taking on debt as companies add equipment, leases, employees and other infrastructure in order to accommodate the anticipated increase in revenues. Many times the growth does lead to new business but the additional debt burden consumes the benefits of that growth and the debtor begins to drown in the sea of growing payables. Even worse, the debtor may have taken on a secured line of credit that threatens to sink the good assets belonging to the company’s previously profitable main business operation.
By focusing on the core business operations of a struggling company the Chapter 11 bankruptcy process can frequently allow that company to shed its extraneous operations, reduce overhead, and trim debt-service payments to a sustainable level.
This is why when new distressed companies come to see me I ask if there is a core sustainable business within its struggling condition. If the answer is “yes” we explore how taking advantage of the automatic stay in bankruptcy and many of the restructure provisions of Chapter 11 will help that company return to profitability.
A great example of this strategy is the case of Chadwicks of Boston a company that has recently emerged from its own Chapter 11 case.
Chadwicks is a woman’s clothier that had experienced long success in targeting the 45- to 60‑year-old demographic. Recently the company flirted with attempting to sell to a younger customer but that strategy backfired. The company found itself burdened with a 700,000‑square-foot headquarters and too many employees. Cash flow was hemorrhaging and the company became viewed as “bad guys” that were not financially stable. By returning to its roots as a clothier for women over 45, reducing its space to a 16,000-square-foot office suite and maintaining a solid workforce of approximately 52 employees Chadwicks has focused on its core business and is poised to enjoy double-digit sales growth in 2013.
