Dive Brief:

• Apparel retailer Destination Maternity filed for bankruptcy Monday with plans to restructure and sell itself in Chapter 11. The company seeks an auction for its business on Dec. 9.
• Destination Maternity said it could fund its operations through the process with cash collateral from its current secured lenders. It went into bankruptcy with $46.9 million in funded debt.
• Ahead of the auction, the retailer plans to close at least 210 of its 436 stores by Nov. 1, with nearly 150 locations that the company is prepared to close this week, according to court documents. Lacking liquidity, the retailer failed to pay rent on all store locations and curtailed payment to the majority of its vendors in October.

Dive Insight:

Destination Maternity blamed the financial turmoil driving it to bankruptcy on crisscrossing trends: competition in maternity clothing is multiplying while pregnancy numbers are declining. 

Lisa Gavales, chair of the "Office of the CEO" (a unit created after the company's latest chief executive departure), cited census figures showing the birth rate in the U.S. declined 9.2% between 2008 and 2017, hitting the lowest levels since 1987. Of course, the retailer can't blame all its problems on demographic changes. 

Rebecca Matthias and her husband launched the company in 1982, first as a mail-order catalog under the name "Mothers Work." As Gavales said of the company's founding in court papers, "An expectant mother and working woman herself, Matthias confronted an all-too common obstacle for working women: a dearth of maternity clothes that are fashionable and sophisticated enough for a professional setting."

By 1990, the retailer operated 40 stores and filed for an initial public stock offering two years later. Having grown, expanded its offering and acquired rivals, the company rebranded in 2008. But over the past five years, Destination Maternity's revenue fell by nearly one-third despite its prominent place in the maternity apparel category, according to Gavales. 

As sales fell, the company sank into chaos. It burned through five CEOs in five years, "each with a different vision for success and few of whom had the opportunity to execute on their business plans," Gavales said. She also noted the executive turnover was "met with turmoil" when investors launched a proxy fight over the board in 2018. 

At the same time, Destination Maternity faced decreasing foot traffic and increasing competition "ranging from high-end fashion to cost-cutting box stores" as well as from online players catering to premium shoppers, according to Gavales. Moreover, she noted that a general trend toward looser fit in women's apparel, such as maxi dresses and elastic waistbands, cut into the company's sales because these non-specialized clothes could be worn further into pregnancy. 

As sales fell and the company started to run out of cash to finance its business, it started a process to try to sell itself in early September while signaling to investors that a Chapter 11 could be in the cards. Destination Maternity said in a press release that its search for a possible buyer "already yielded indications of interest from several credible bidders." 

Meanwhile, as the company pulled back on vendor payments this month, suppliers held merchandise deliveries, and landlords began issuing default notices. The latter threatened disaster, if landlords locked the retailer out of its stores, even those slated for closure.

All its troubles aside, Gavales still sees long-term value in the retailer, citing statistics showing one-third of expecting mothers engage with the company.