Body Central begins New Year in bad shape

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Body Central begins New Year in bad shape
January 7, 2015 | By Gina Acosta

Another mall-based retailer has announced that it is in default and struggling for survival.

Body Central Corp. announced that it is in default on $18 million in debt and is exploring strategic alternatives, the Jacksonville, Florida-based company said in a statement.

The company also said it is experiencing “significant liquidity problems,” and is exploring options, including a possible bankruptcy filing.

Ben Rosenfeld, president and CEO, said: "While the company has made significant reductions in expenses and reduced excess inventory levels, our top line remains challenged by both the overall market environment and the transition time required to complete the merchandise transformation that began in the latter half of 2014. The management team and board, along with its advisors will continue to evaluate all available alternatives that may be appropriate for the business."

The retailer, which operates about 265 stores in 28 states, sells clothes and accessories to young women and teens. It has lost about $70 million in the 12 months through September, joining a parade of struggling retailers that cater to younger shoppers.

Deb Stores Holding LLC and Delia’s Inc. filed for bankruptcy in December, hurt by competition from online and fast-fashion retailers.

Wet Seal Inc., meanwhile, announced it will close about two-thirds of its locations as it strives to save cash after receiving a default notice on $27 million in notes.

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Body Central Going out of Business, to Close All Stores

Clothing retailer Body Central is going out of business and closing all its stores Sunday evening, according to an attorney for the company.

Body Central Corp., based in Jacksonville, Florida, had said earlier this week that it was "experiencing significant liquidity challenges" and was working with advisers to evaluate its options. As of Jan. 6, the company had 265 stores in 28 states. Gardner Davis, an attorney for the company, said it had about 2,500 employees, who were notified of the closures Friday.

Davis said the company had sought to reorganize its business, but "simply couldn't raise the capital."

Body Central was founded in 1972 and caters to women in their late teens to mid-30s, according to the company's website.

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So in less than a month you've got deb shops, delia's, and body central liquidating completely, wet seal closing 2/3 of their locations, and abrocrombie/holister closing 60 locations. Not looking good for teen/young adult mall retailers!

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So in less than a month you've got deb shops, delia's, and body central liquidating completely, wet seal closing 2/3 of their locations, and abrocrombie/holister closing 60 locations. Not looking to go teen/young adult mall retailers!

Not to mention JCPenney and Macy's announcing plans to shutter a number of their respective locations within days of each other, as well as Sears' plans to shutter about a third of their locations and store-closing sales commencing at several Radio Shack stores.

2015 so far has not been good for a number of malls in general.

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Body Central's demise follows years of rising revenue and expansion

By Richard Webner Tue, Jan 13, 2015 @ 6:11 pm | updated Tue, Jan 13, 2015 @ 9:26 pm
Body Central's Avenues Mall location Bruce.Lipsky@jacksonville.com
Bruce.Lipsky@jacksonville.com

Two days after Jacksonville-based Body Central closed all its stores, the lights were still on at the River City Marketplace location, and its neon-purple sign was still glowing.

But it was empty inside, except for a pile of cardboard boxes and a stack of mannequin torsos leaning against a wall. On the window, a sign thanked the customers who stayed loyal until the end, drawing curious but brief glances from passers-by.

The store’s disorder hinted at the abruptness of Body Central’s demise. At the beginning of the decade, the fashion retailer was enjoying revenue growth of more than 20 percent a year, and until 2013 it was sticking to an ambitious expansion plan. But after defaulting on $18 million of debt, it announced on Friday that it was closing all 265 of its stores and laying off 2,500 employees, including 185 at its headquarters on Powers Avenue.

By Monday morning, Body Central was kaput â€" its Twitter account dormant, its Facebook page deleted, its website an error message. The company had been in business since 1972, when it opened its first location in the now-defunct Roosevelt Mall. For more than 30 of those years, it was run by locals Ronnie and Jerrold Rosenbaum.

“I have never seen a retailer do so well and suddenly fall off a cliff, so fast, ever,” said Mark Montagna, an analyst at Avondale Partners in Nashville who once followed the company. “There are questions that are just unanswered.”

TROUBLE FOR ‘FAST FASHION’

Body Central, which sold clothing geared to teen girls and women in their 20s, isn’t the only store of its kind that has struggled recently.

The past few years have also been rough on stores in the “fast fashion” category, which included Body Central. “Fast fashion” is a term describing stores that don’t set fashion trends; instead, they sell clothing that mimics popular fashions at low prices.

Last week, Wet Seal announced it was closing 338 of its 511 stores after years of declining sales. In the past month, Delia’s and Deb Stores, also in the fast fashion category, filed for bankruptcy.

Part of the problem for stores like Body Central, which had most of its locations in malls, is a change in consumer habits, said Craig Johnson, president of Customer Growth Partners, a retail consulting firm. Many Americans are staying away from malls as they spend less on clothing and do more of their shopping online, he said.

As the fast fashion segment became more popular over the past decade, retailers opened too many new stores and made their stores too large, Johnson said. Then the bubble burst, and now the weaker players are being swept away.

“They were breathing their own exhaust fumes too much and thought it would go on forever,” Johnson said.

THE COSTS OF EXPANSION

Less than three years ago, Body Central was in the midst of its own expansion, which it embarked on after its initial public offering in 2010. While the national economy recuperated from the recession, the company declared a goal of expanding its number of stores by 15 percent each year, according to its SEC filings.

It only hit that goal for one year, but it grew swiftly nonetheless, from 197 stores in 2010 to 294 in 2013, according to SEC filings. It ventured far beyond its original base in the Southeast, into West Virginia, Michigan, New Jersey, Wisconsin, Minnesota and New Mexico.

As Body Central’s store base grew, so did its revenue, which rose from $199 million to $311 million from 2009 to 2013. But the cost of buying and distributing its merchandise went up, too, from $139 million to $211 million. And its sales-related and administrative expenses more than doubled, from $46 million to $95 million.

For a while, the revenues outpaced the costs, and net income swelled from $2.8 million in 2009 to $19.7 million in 2011. But then revenue growth slowed down and, in 2013, turned into a decline as the company’s comparable store sales plummeted by 8.1 percent in 2012 and 16.8 percent in 2013.

During its expansion, Body Central waited too long to invest in the infrastructure needed to run a far-flung retail empire, Montagna said, such as distribution centers and a modern computer network that would allow it to coordinate its inventory more efficiently.

“They overexpanded their store base, and they did it too quickly,” he said. “There are certain systems that are like your spinal cord. Their spinal cord was deficient.”

WARNING SIGNS

Body Central began showing warning signs in the early years of this decade.

Founder Jerrold Rosenbaum, who remained on the company’s board of directors after his family sold its controlling interest in 2006, started selling large amounts of his stock in late 2010, according to SEC filings. By mid-2012, he had less than a tenth of his original 2 million shares. Several other board members also unloaded stock.

Meanwhile, as revenue shriveled up, the company’s cash and cash equivalents dropped from $41.1 million in 2012 to $16.5 million in 2013, according to SEC filings.

Since 2012, the company has gone through two CEOs and tried to halt its decline with a few changes, such as a redesign of its stores and a new focus on women in the 20s and 30s, rather than teens. But its revenues fell in each of the first three quarters of 2014.

In June, Body Central committed an act of desperation by taking an $18 million loan without shareholder approval. That was a violation of Nasdaq rules, leading the company to remove its listing from the exchange. From then on, the stock was listed on the OTC Pink market, a market that companies sometimes resort to when they can’t make it onto a national exchange.

“An investment in our company may require a long-term commitment, with no certainty of return,” the company warned investors in an SEC filing from September.

The company’s stock, which traded at more than $20 a share in late 2011 and early 2012, dropped to less than a dollar.

Before declaring bankruptcy, the company spent about a month looking for alternatives, said Gardner Davis, an attorney representing the company. It appealed to private equity funds and other investors and lenders. If the company had survived, the plan was to close its unprofitable stores.

“In the final analysis, the company could find no new investors and there was no, no alternative but to liquidate,” Davis said. “The board and management are just heartbroken that they couldn’t find a solution.”

On January 7, the company announced that it had defaulted on the loan it took in June and was considering bankruptcy. Two days later, employees at its corporate headquarters were exchanging hugs after the company announced its downfall.

Richard Webner: (904) 359-4370