Such was the case with jewelry retailer Alex and Ani, which had already defaulted on its credit agreement in late 2018 and was still resetting operations as COVID-19 hit and closed down stores.
The East Greenwich, R.I.-based company finally gave up the ghost late Wednesday, filing for Chapter 11 bankruptcy protection as part of a restructuring support agreement, completing the company’s shift from hot commodity to cautionary tale.
Along the way, Lion Capital took majority control of the company’s stock, consolidated many of its debts and is now continuing operations while also testing the waters by looking for potential buyers.
Alex and Ani said it would continue to have the financial resources needed to stay open and continue to serve customers and pay employees while it looks to “optimize” its store base further, and bolster e-commerce and its strategic wholesale accounts.
In broad strokes, the story at Alex and Ani is familiar, with the company finding its financial obligations — especially to landlords — just too great bear as consumers reoriented during the pandemic. Neiman Marcus, J.C. Penney, J. Crew, Brooks Brothers and Ascena Retail Group were just some of the retailers to succumb to bankruptcy last year.
But Alex and Ani stands out, having been something of a golden child in a niche space that eventually ran into operational troubles after a fast ramp up and faltered in an already fast-moving consumer space.
Carolyn Rafaelian founded the company in 2004 out of the basement of her father’s jewelry factory and quickly made her mark with a customizable and expandable wire bracelet. The company forged key wholesale accounts, opened its first store in 2009 in Newport, R.I., and expanded, building a chain with more than 100 locations across the U.S. and Canada.
In court papers filed Thursday, Robert Trabucco, Alex and Ani’s chief restructuring officer since September 2019, said of the firm’s start: “The company channeled Ms. Rafaelian’s spiritual energy and ethos, and Alex and Ani’s jewelry was soon known as a symbol of spiritual well-being and empowerment. The company grew significantly beginning in 2010 to a valuation of over $1 billion in 2014; Ms. Rafaelian was ranked by Forbes as one of America’s richest self-made women in 2017.”
In less than a decade, the company was selling nearly 10 million bracelets annually and employed more than 1,000 people.
Rafaelian sold a 40 percent stake in the business in 2012 to private equity firm JH Partners, which flipped the investment to Lion Capital two years later.
“The company’s revenue dropped from its peak of approximately $340 million in 2015 to approximately $224 million in 2018 due to operational difficulties,” Trabucco said in his declaration to the court. “Moreover, tensions within the company exacerbated the effects of these challenges as the company experienced significant management turnover, which in turn impacted its customer and vendor relationships.”
Specifically, he said: “In early 2014, then-CEO Giovanni Feroce departed the company at Ms. Rafaelian’s request. Mr. Feroce’s departure was quickly followed by the voluntary or requested departure of the company’s chief financial officer, chief technical officer, chief strategy officer, chief digital officer, acting chief operating officer, assistant general counsel and its vice presidents of transitional operations, retail and wholesale.”
Rafaelian could not immediately be reached for comment Thursday.
The general consumer shift away from brick-and-mortar stores and inventory problems caused Alex and Ani’s wholesale sales to drop from 59 percent of total revenues in 2015 to 19 percent of forecast revenues this year, Trabucco said.
In December 2018, Bank of America declared a default on Alex and Ani’s credit agreement, a default that the company for a time fought for a time, accusing the bank of “greed and sexism” in a $1.1 billion lawsuit.
That suit was dropped as part of a restructuring that Trabucco said helped the company avoid bankruptcy at the time and saw Lion become majority shareholder, Rafaelian’s resignation as chief executive officer, and his own appointment as interim CEO in 2019.
But soon COVID-19 clamped down, prompting the company to close stores and furlough workers.
In February, Bank of America declared another default and Lion bought all of the company’s first- and third-lien debt. The company is party to 74 leases for stores, a third of which are still closed due to COVID-19.
Five of Alex and Ani’s top six creditors are landlords with disputed claims against the retailer. At the top of the list is Chapel Associates II (owed $4.1 million), followed by Simon Property Group ($3.9 million), Brookfield Properties Retail Inc. ($3.3 million), Macerich Oaks ($2.1 million) and Westfield ($753,578). Quality Spray Technologies is Alex and Ani’s fourth-largest creditor, owed $3.3 million.
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