Dive Brief:

• Charming Charlie, which filed for Chapter 11 in December, exited bankruptcy this week, the company said in a press release.
• The restructured apparel and accessories retailer emerged from Chapter 11 with 264 stores, more than 100 fewer than when it filed.
• Under Charming Charlie's reorganization plan, lenders took over most ownership in the new company. That includes THL Credit, which is now the major equity holder. THL CEO Christopher Flynn said in a statement that the credit firm is confident in Charming Charlie's "underlying fundamentals" and "growth opportunities we see for the business going forward." Lana Krauter, who took over as Charming Charlie's CEO in the fall, said the retailer emerged from Chapter 11 "as a stronger, more focused organization."

Dive Insight:

Charming Charlie entered Chapter 11 in December with a drawn-up plan to close stores and shed debt. It made the process more orderly and certain, and it also signaled that the company likely had the backing of a major financial stakeholder.

Retailers often need all of those elements — a plan, an orderly and efficient bankruptcy process, and a sponsor — to survive the process. We've seen two major retailers this year — Toys R Us and Bon-Ton Stores — go into liquidation in large part because they didn't have any of those things when they landed in court.

As for how the retailer ended up in bankruptcy, Charming Charlie CFO Robert Adamek said in a court filing at the outset that "the general shift from brick-and-mortar retail has been further exacerbated by merchandising miscalculations, lack of inventory [and] an overly broad vendor base, all of which has led to underperformance and reduced sales." Over the last several years, Charming Charlie's revenues have fallen 22% and its profits have dropped off by more than 75%, Adamek added.

The company may have failed to adapt to larger shifts in the retail landscape. That said, in the short run the retailer simply found itself "out of cash to responsibly operate its business," Adamek said. In the fall, the retailer went in search of a loan to help it through the holiday season. But Adamek said those efforts failed, and the company was "unable to secure appropriate inventory for the November and December holiday season," creating the need for a Chapter 11 filing.  

Founded in 2004, Charming Charlie made a name for itself by organizing accessories and jewelry assortments by color and pricing its products in a "sweet spot" between more upscale retailers like Macy's and specialty sellers like Claire's that cater to younger shoppers.

It grew into a retailer with more than $400 million in sales and a space on several lists of hot companies, according to Adamek. Backed by private equity firms TSG Consumer Partners and Hancock Park Associates, the company had, prior to Chapter 11, struggled to pay off its debt after a period of rapid expansion.

Now Charming Charlie joins the ranks of specialty retailers that have filed Chapter 11 recently in efforts to restructure their business and match their finances and store fleet to a customer base that has shrunk. Those names include Payless, Gymboree, rue21 and True Religion, all of which entered and exited bankruptcy in a matter of months, having executed in court plans largely prepared before filing.

The question hanging over all of them is whether their restructured businesses are truly right-sized, and if after bankruptcy they can hold onto the market share they have left.