The 53-year-old The Limited — which has already closed all of its stores — and two affiliates on Tuesday filed for Chapter 11 bankruptcy court protection in Delaware, but the nameplate will likely live on online.
According to court documents connected with the bankruptcy filing, private equity firm Sycamore Partners has signed a stalking-horse agreement to acquire the intellectual property of The Limited for nearly $25.8 million in cash and the assumption of certain obligations. The asset sale is still subject to bankruptcy court approval, as well as a court-approved auction in case there are better offers. Under the bid protections contemplated — and still subject to court approval — Sycamore would be entitled to $772,500 as a break-up fee and $500,000 in expense reimbursement should a better offer be accepted at auction.
A separate affiliate of Sycamore not connected with the purchase, MGF Sourcing, is also an unsecured creditor of Limited Stores, according to the list of creditors in the court filing. Global sourcing firm MGF was acquired by The Limited in 1978, when it was known as Mast. Sycamore acquired a 51 percent stake in MGF’s apparel sourcing arm in 2011 from Limited Brands, the renamed public entity, after it started selling some of its apparel businesses that was subsequently renamed L Brands, and in 2015 acquired the remaining interest.
The retailer, owned by Sun Capital Partners, shut down all stores this past weekend. And the company web site at thelimited.com, which is “temporarily” down, noted that it will be “back up and running as soon as possible.” That makes the filing essentially a formality to wind down operations such as paying creditor claims, as well as sell remaining assets.
It wasn’t immediately clear what Sycamore’s plans are for the IP assets, although the notation on The Limited web site about it being temporarily down suggests there could be life online. And there’s precedent for that — when Sycamore in 2014 acquired the Coldwater Creek IP assets in bankruptcy after all the stores were shuttered, it brought back the nameplate as an e-tailer. That’s in contrast to The Talbots Inc. and Belk Stores, which Sycamore acquired as going concerns in 2012 and 2015, respectively.
According to the chapter 11 petition, assets were estimated at between $10 million and $50 million, with liabilities estimated at between $100 million and $500 million. Among the top unsecured creditors are: LF Centennial PTE Ltd., Kowloon, Hong Kong, supplier, $32.2 million; Seven Licensing Co., Los Angeles supplier, $2.8 million; LLS Freight, Columbus, Ohio, trade services, $1.5 million; U.S. Customs & Border Protection, Middleburg Heights, Ohio, duties, $1.5 million, and United Parcel Service, Atlanta, trade services, $1.3 million.
Timothy D. Boates, the retailer’s chief restructuring officer, said in a court document the company at its peak operated about 750 stores in the U.S., but the store count had dropped to 250 in 42 states at the time the business was shut. He said declining mall traffic and lower-than-projected sales — similar to the traffic and sales patterns faced by American Apparel, Aéropostale, DEB Stores, Pacific Sunwear and Quicksilver — were a few of the challenges the retailer faced over the last several years. He noted that from 2015 through November 2016, the business saw an 8.3 percent decrease in mall traffic, which resulted in a 15.6 percent decline in store sales.
“As a direct result, the company’s earnings before interest, taxes, depreciation and amortization declined approximately 93 percent from 2015 to 2016 [and] 95 percent below the company’s 2016 projections,” Boates said.
Boates also said marketing efforts to sell the business began in mid-2015. The company began an orderly liquidation of the operation on Dec. 14, with the help of Hilco Merchant Resources, and by Jan. 8 had vacated each store location before the bankruptcy filing.
In a separate court filing in connection with the approval and bid procedures for the agreement with Sycamore, it was noted that the company had received an offer to enter into a venture where the IP assets would be sold, with the buyer developing new distribution channels. The offer was rejected and the parties then discussed the sale of the business as a going concern with the inclusion of a third-party retail operator, but that failed after the parties were unable to agree on a purchase price.
Founded in 1963 as a single store in Upper Arlington, Ohio, the business grew to six stores in 1969, when it went public as The Limited Inc., and by 1976 there were 100 stores in operation. The Limited at one point was the marquis brand and namesake of Leslie H. Wexner’s retail empire. In 1985, The Limited had 5 percent of the market share in the U.S. women’s apparel sector.
Over time, The Limited acquired other brands or began other nameplates. Those names include Victoria’s Secret, Lane Bryant, Lerner New York, Henri Bendel and Abercrombie & Fitch. Wexner later on decided to focus on brands with the potential to do $1 billion in annual volume, such as Victoria’s Secret and Bath & Body Works, and began divesting his apparel brands. The company Wexner built is now known as L Brands.