Rue 21 Closing Hundreds of Stores Amid Lender Talks

The teen retailer is the latest in a long line of industry players trying to cut costs by shrinking store fleets

Add Rue 21 to the growing list of retailers closing stores to cut costs.

A spokeswoman for the teen retailer confirmed a brief post to Rue 21’s Facebook page that mentioned the “difficult but necessary decision” to close certain stores.

While the spokeswoman would not say how many stores are set to shutter over the coming weeks, Rue 21’s web site shows 400 stores across the U.S. will go dark, in addition to the 14 units that have already been shut down.

“As part of our ongoing business transformation into a more cost-efficient operator, we are closing unprofitable stores across our fleet in order to focus on our many hundreds of highly profitable locations,” the spokeswoman said.

Rue 21 currently operates close to 1,200 stores in all 48 states of the contiguous U.S. and the company joins a slew of retailers deciding to shut hundreds of stores.

In response to whether the store closings signal the beginning of a wider company restructuring, the spokeswoman said talks with lenders were taking place and she alluded to Rue 21’s unfavorable financial state.

“We continue to work with our lenders and bondholders to find the best solution to the company’s need for more capital and for a business model with less debt, in order to ensure that we move forward as a stronger and more sustainable enterprise,” she added.

The decision to sizably shrink its store footprint comes about two weeks after Rue 21 entered into forbearance agreements with lenders in order to stave off a default.

The agreements are set to expire sometime late this month and a company spokesman declined to comment at the time on whether an extension was being considered.

Without further forbearance from lenders, the retailer will likely default and be essentially forced into bankruptcy — for the second time. Rue 21’s first bankruptcy came in early 2002, when it was going by the name Pennsylvania Fashions Inc. It emerged under the new name the following year and went public a year after that.

Rue 21 was acquired in 2013 by private equity firm Apax Partners for $1.1 billion.

In recent months, the retailer has found itself on the bankruptcy watch lists of financial analysts, citing its high debt and weak liquidity position, along with strong competitors like H&M and Zara and the weak economic placement of its younger target consumer.