Dive Brief:

• Claire's Stores won court approval this week to vacate 37 of its standalone stores, mostly in malls around the country, according to court documents.
• In April the teen retailer, which filed for Chapter 11 bankruptcy about two and a half months ago, won court approval to leave an additional 95 stores, according to court filings. That makes for a total of more than 130 leases the retailer has been cleared to exit in bankruptcy so far.
• In June, the court will review Claire's plan to market itself to potential buyers and investors outside of the reorganization plan it negotiated with its owner and major lenders ahead of filing for bankruptcy. The hearing concerns a motion from Oaktree Capital Management, a major bondholder, that argued Claire's marketing materials for the company undervalued the retailer and that the process should be modified.

Dive Insight:

Claire's went into bankruptcy with a plan that provided financing and a roadmap to continue operating beyond Chapter 11, but it did not say if or how many locations it might close.

While there's still time in the process to close more stores, it's already clear that the teen retailer — which in early bankruptcy filings said it had pierced more than 100 million ears worldwide — is moving to close a significant fraction of its more than 1,400 U.S. stores.

Even as Claire's does so, however, it is expanding its concession business, which relies on other retailers to house Claire's product stands in exchange for a sales commission. In a press release announcing Claire's bankruptcy, the company said it expected its concessions business to grow by more than 4,000 stores this year. Claire's said then, "Claire's is growing, not shrinking, its business." Looking at the court-approved closures from recent weeks, that statement now appears to have relied on some parsing of terms.

At the time of filing, Claire's had just under 4,000 concession stores in the U.S. and Puerto Rico and nearly 4,500 worldwide, according to a filing by Claire's Chief Financial Officer Scott Huckins. Unfortunately for Claire's, the company had a major retail partner in Toys R Us, which is now in the process of winding down its U.S. presence. In a May court filing, Claire's said its concessions inside Toys R Us stores accounted for about $59.1 million in revenue and $12.4 million in earnings in 2017.

Nonetheless, it's clear Claire's concessions channel is successful and growing. "By partnering with other retailers, the Claire's Group is able to gain access to new sales channels without encroaching on its traditional mall-based operations," Huckins said of the concessions business. Attorneys for Oaktree, which has opposed Claire's reorganization plan from the get-go, have seized on the burgeoning concession business to argue that Claire's outside marketing undervalues the retailer.

As part of its Chapter 11 plan, Claire's was left free to seek alternative options — including finding an acquirer — beyond the reorganization plan it negotiated with its private equity owner Apollo Global Management and a group of lenders led by Elliott Management and Monarch Alternative Capital.

Oaktree said of the reorganization plan that it was based on "an artificially low valuation that was not and has not been market tested" and included an exit financing plan that "delivers substantially all of [Claire's] enterprise value to the RSA [restructuring support agreement] parties." Oaktree added that the reorganization plan does not attribute any value to the potential proceeds from a new plan to add Claire's concession stands to "thousands" of CVS stores around the country. Oaktree also argued that Claire's timeframe for seeking other potential investors was too short, prompting its efforts to try to extend the timeline and alter the plan. 

It's not clear what if any difference an updated marketing plan would mean for the outcome of Claire's bankruptcy. But unlike the lender fights in the Bon-Ton and Toys R Us bankruptcies, which forced those retailers to liquidate, Oaktree's alarms imply that Claire's stakeholders see value in the company as an operating retailer. Court spats notwithstanding, the conflict over Claire's operating value is a good sign for the company's future.