Dive Brief:
- The U.S. arm of beauty and wellness brand L'Occitane filed for Chapter 11 bankruptcy Tuesday in hopes of reducing its physical footprint.
- The company has immediate plans to close 23 stores as it looks to shed unprofitable and declining locations after the toll COVID-19 took on its business, according to court papers.
- L'Occitane currently runs 166 boutiques in the U.S., largely based in regional malls.
Dive Insight:
L'Occitane said in a press release that "its business continues to be impacted by disproportionately high store rent obligations that are no longer tenable," making Chapter 11 necessary to speed store closures.
In court papers, Yann Tanini, managing director of L'Occitane North America, said that the retailer's lease obligations amount to $30.3 million annually. It currently has $15.1 million that is in arrears, and landlords are withholding more than half a million dollars in security deposits.
"[T]he Debtor’s primary goal in chapter 11 is to right-size its physical footprint in part by rejecting certain leases to enable the Debtor to better adapt and cultivate sustained profitability in light of the increasing shift to online purchasing and the impact of the COVID-19 pandemic on brick-and-mortar retail sales," Tanini said.
Tanini also detailed how the COVID-19 pandemic hit L'Occitane's business, dragging down sales by 21% between April and December compared to 2019 while brick-and-mortar sales fell by 56.5%. At the same time during that period, the beauty retailer's e-commerce sales expanded by 72% and went from around 20% of its total sales to 42.7%.
The growth in online sales, combined with a decline in store sales that began before the pandemic, marks a broad structural shift. The company described in a press release the Chapter 11 process as way to "further accelerate a transformation already well underway to best position its business for the future."
The L'Occitane brand was founded in 1976 in Manosque, France, by Olivier Baussan. The brand was based on Baussan's use of "steam distillation process to produce essential oil from wild rosemary and lavender, as well as manufactured vegetable-based soaps, which he sold in the open air markets of the Provence region of France," Tanini said.
Twenty years later Austrian businessman Reinold Geiger took majority ownership of the company and helped it expand into an international retailer with stores in 90 countries spanning six continents. The brand specializes in organic and natural products that it says "preserves and celebrates the traditions of Provence."
L'Occitane's Chapter 11 filing in the U.S. fits into a larger trend of retailers battered by sales declines using bankruptcy to exit leases and negotiate with landlords for concessions. The tension between struggling store chains and landlords, of course, is not limited to bankruptcy filings. Rent negotiations were widespread in the industry amid the pandemic and are likely to continue well into 2021 if not beyond. Some have called for more revenue-sharing arrangements to ease retailers' pain during the economic fallout from COVID-19.
