New York & Company has been in business a long time, going all the way back to 1918 when it was incorporated as Lerner Shops.
But now it’s done.
New York & Company declared bankruptcy in July of 2020, citing COVID-19 as the main factor. But in truth, the company had been on death’s doorstep for years.
New York & Company sells women’s workwear, casual apparel, and accessories to women between the ages of 25 and 49. The company has 387 stores in 33 states, and it’s been a fixture in American malls for decades.
Which is precisely the problem.
Mall traffic has been declining for quite some time, slowly siphoning away New York & Company’s customer base. The company knew it was in trouble and tried several strategies to stay alive.
First, it closed 150 stores since 2014. Sales per square foot has been declining, so the company wanted to decrease its physical footprint and shift more sales online. And it partially worked; the least profitable stores were closed, and one-third of the sales now come from e-commerce. But this wasn’t enough; same-store sales declined a whopping 5.4% in fiscal year 2019. The firm planned to shutter an additional 150 stores to “reposition itself as a digitally dominant retailer” before COVID hit, so clearly it didn’t see much of a future in its stores.
Second, New York & Company increasingly partnered with celebrities. The growth of these “sub-brands” caused New York & Company to rename itself “RTW Retailwinds” in November of 2018, which is the most unappealing name I’ve ever heard for a retailer. The company hoped to “become the premier incubator of celebrity and lifestyle brands” and collaborated with famous people like Gabrielle Union and Eva Mendes. Some of the brands were only available online, like Kate Hudson’s “Uncommon Sense,” a lingerie brand that RTW shut down after just a few months and that cost the company over $4 million.
Okay, that didn’t work; so how about a change in leadership? Maybe a new CEO can bring in some fresh ideas.
Nope.
RTW promoted its chief marketing officer, Traci Inglis, to CEO in March of 2020. But Inglis and four board members resigned a month later with no explanation, leaving the CFO in charge.
Thus, RTW didn’t have much of a turnaround strategy aside from “sell more stuff online.”
Let’s look at the financials, maybe that will tell us why the CEO jumped ship after a few weeks.
The company’s gross profit percentage decreased more than three full percentage points from 2018 to 2019; RTW said it needed to do a lot more discounting than expected, particularly with the Uncommon Sense brand that failed. But the gross profit percentage was also lower due to increased shipping costs from online sales.
SG&A as a percentage of sales also increased (nearly three percentage points), which RTW attributed to higher customer acquisition costs to build its e-commerce sales and grow new brands. This makes sense; since the company could no longer rely on mall traffic to drive sales, customer acquisition costs were bound to increase.
Top-line revenue decreased from $893 to $826 million from 2018 to 2019; the company eked out a $4 million profit in 2018 but lost $61 million in 2019. Cash flow was a disaster, with the company burning through $35 of its $95 million in cash in just one year. The company was clearly on the way down, and this was before the pandemic.
COVID-19 simply accelerated RTW’s demise.
The company’s business is highly seasonal, with spring and fall being its two main selling seasons. Thus, RTW got caught holding a lot of inventory when it was forced to close its stores in mid-March. The company had $76 million tied up in inventory that it couldn’t sell; even furloughing most of its 4,971 employees and stiffing landlords couldn’t solve the company’s lack of cash.
There were other problems of course; the tariffs on Chinese goods didn’t help, with RTW sourcing 95% of its products from China, Vietnam, and Indonesia. But it wasn’t tariffs, a pandemic, or other factors that killed this hundred-year old company.
It was the company’s failure to adapt to a change in consumer preferences.
People were tired of malls before the pandemic, and now they’re even more tired of malls.
And RTW didn’t have an answer for that. The Hail Mary pass was to convince people to buy Kate Hudson’s lingerie brand online, and when that didn’t work it was only a matter of time.
Here’s a link to RTW’s most recent 10-K:
