skip to main content


Post-Holiday Blues Ushers in Winter of Discontent for Some Retailers

February 1, 2023

Unfortunately, many retailers face a reckoning in January and February after lower-than-expected holiday sales.

Bed Bath & Beyond is the latest retailer to face a post-holiday swoon and will likely be adding a fourth “B” soon to its business: “bankruptcy”. On January 26, Bed Bath & Beyond filed a regulatory notice indicating it (a) received a notice of default from its lender, (b) lacked cash to pay its loans and (c) was exploring bankruptcy or restructuring alternatives. Bed Bath & Beyond has closed or plans to close over 150 stores in a last-ditch effort to save cash.

Earlier this month, discount retailer Party City filed for Chapter 11 based in part on supply chain issues. In 2017, Toys R Us filed for Chapter 11 with plans to reorganize. However, the chain ended up liquidating after falling well short of holiday sales targets.

Struggling retailers who are on the financial ropes use the holiday season as their “Hail Mary” pass to attempt to avoid a bankruptcy or restructuring. Unfortunately, the pass often falls short of the end zone. Once a retailer’s financial issues come to light, many suppliers tighten or eliminate credit, thereby exacerbating a retailer’s cash crunch. In an era of supply chain issues around the globe, depleted inventory on shelves often becomes a self-fulfilling prophecy of financial doom for a retailer, as customers start to avoid their stores.

While Chapter 11 bankruptcy should always be an option of last resort, a Chapter 11 filing does present opportunities for a struggling retailer to improve its balance sheet and remain operating. Some of the most common, beneficial tools used by retailers in Chapter 11 include the following:

  • Retailers with multiple store locations may reject unexpired leases of real property. This permits a retailer to close unprofitable locations and escape burdensome lease obligations.
  • Claims held by landlords are subject to statutory caps that limit damage claims to the rent reserved by a lease, for the greater of one year or 15 percent, not to exceed three years of the remaining term of the lease.
  • Retailers may file plans of reorganization that limit payments towards landlord claims and stretch them out over time.
  • Retailers use debtor-in-possession financing to provide a comfort level to jittery suppliers to ensure them that they will receive payment for any products shipped during the Chapter 11.

It is critical for retailers to not wait until it is too late to address financial distress. Retailers should bring in outside financial consultants and engage with lenders early in the process if financial storm clouds are on the horizon. Without proactive steps, a hopeful restructuring may turn into a liquidation in bankruptcy.


Practice Areas