Dive Brief:

• Gymboree plans to close 350 stores as part of a restructuring plan being finalized in bankruptcy court with the company's creditors, according to a company announcement released Tuesday.
• The move is a part of the children’s apparel retailer’s “go-forward” store footprint plan, with the closures mainly spread across the company’s namesake Gymboree stores as well its Crazy 8 branded stores, which typically carry lower-priced fare. The retailer left open the possibility it could close more stores in the coming months.
• As of April, the company operated nearly 1,300 stores, including more than 750 Gymboree and Gymboree Outlet stores, 378 Crazy 8 stores and about 150 of the higher-end, more profitable Janie and Jack shops. The retailer is working with Great American Group and Tiger Group to manage the closing sales for the stores it plans to shutter.

Dive Insight:

Gymboree’s announced store closures track closely in number with early reports about an impending restructuring as well as Gymboree’s early bankruptcy filings, though the children’s apparel retailer said in court documents, shortly after filing for bankruptcy, it could close up to 450 stores.

Josh Friedman, a legal analyst with Debtwire, pointed out in an interview with Retail Dive that the closure number was about 20 stores higher than a list released earlier this week and could get higher as the bankruptcy process goes on, giving Gymboree time to collect data on other stores that might not be as obvious candidates for closure. "It is definitely possible we could see more store closures beyond the 350 announced," he said. 

Analysts have expected, and insiders have hinted, that Gymboree would likely target its Crazy 8 and Gymboree brands as it looks to shrink its store footprint. The Crazy 8 brand is less profitable, has seen declining sales and faces plenty of competition from the likes of Target and Walmart, as well as from off-price and online retailers. The Gymboree stores, meanwhile, fall into an awkward middle market that consumers, across apparel and retail niches, have been abandoning.

As David Silverman, senior director for retail coverage at Fitch Ratings, told Retail Dive in an earlier interview, Gymboree’s various store lines have essentially been cannibalizing each other while competitors such as Carters and The Children’s Place have been outpacing the company in growth.

Add to those retail issues a financial vise created by roughly $1 billion dollars in debt, a legacy from private equity firm Bain Capital’s leveraged buyout of Gymboree in 2010. “Internally generated cash flow has to be redirected to interest expense and other fixed obligations, which leaves the company unable to devote capital toward addressing its challenges through updated merchandising, through investing in omnichannel systems, through investing in store remodels appropriately to drive consumer excitement,” Silverman said in the weeks before Gymboree filed.

The company's restructuring plan is meant to fix these problems by providing $900 million in debt relief as well as hundreds of millions of debtor-in-possession financing. The store closures are also a way to shore up the company’s balance sheet for the long-term, scaling down the retailer as it tries to focus on its most profitable lines (namely Janie and Jack and some of its Gymboree-branded stores). Time will tell if Gymboree's remaining stores can maintain their market share and profitability amid competition, and if they can support any remaining debt once Gymboree exits bankruptcy, which it hopes to do in September.

Gymboree President and CEO Daniel Griesemer, who started in May, said in a statement of the closures, "Right-sizing our store footprint is a central part of our efforts to ensure Gymboree emerges from this restructuring process as a stronger and more competitive organization, with greater financial flexibility to invest in our future.”

The store closures are likely good news for rival The Children's Place, which shares much of its mall footprint with Gymboree and stands to absorb many of the company's lost customers.