Dive Brief:

• Regional gift specialist The Paper Store filed for Chapter 11 bankruptcy Tuesday after trying to manage a liquidity crisis brought on by the COVID-19 closures, which hit on some of the company's most important selling days.
• The company, which runs 86 stores in the Northeast, is looking to sell itself in bankruptcy. The company's tight timeline calls for a late August auction. Don Van der Wiel, a restructuring adviser to The Paper Store, said in court papers that a group that includes one of the retailer's creditors has "expressed an interest" in making a stalking horse bid for the company that would set the baseline at an auction.
• The retailer entered bankruptcy with $45 million in funded debt, $13.5 million in unpaid bills to vendors, and $3.7 million in unpaid rent for April, May and June, among other liabilities.

Dive Insight:

The Paper Store's trajectory took a quick and disastrous change with the spread of COVID-19 in the U.S. 

Prior to the pandemic, a shortened season and stormy winter knocked $2 million off the retailer's sales for the holiday season, Van der Wiel, who is a managing director at G2 Capital Advisors, said. That hit the retailer's bottom line as well. Still, sales in 2019 had increased over the past year, to $167 million. By the first two months of 2020, the retailer was on track for the year. 

"Shortly after Valentine's Day, however, the Debtors noticed a drop off in per store sales traced to the growing concern of customers over [COVID-19], which was beginning to receive national and local press coverage," Van der Wiel said.

Things got worse from there: quarantines, social distancing, shelter-in-place orders. The Paper Store voluntarily closed its stores in response. "The impact of COVID-19 on [The Paper Store] cannot be overstated," Van der Wiel said, who pointed to lost sales for Easter, Mother's Day, graduation and year's end teacher gifts, all of importance to the retailer. "Store closures have significantly contributed to missed sales targets, unsold inventory, and have depressed profit margins."

In an effort to maintain liquidity, the retailer furloughed almost all of its employees, leaving only a skeleton crew at its corporate headquarters and distribution center. Salaries were reduced for those employees that remained, and the company's founding family waived their salaries for the year. More, the company pushed out vendor payments and skipped rent. While it has tried to negotiate its leases, landlords haven't shown much interest so far, Van der Wiel said. 

All these efforts weren't enough to keep the retailer out of bankruptcy. Now the gift specialist, which was founded in 1964 in Massachusetts by Robert Anderson and is still owned and operated by the Anderson family, is looking for a buyer, and fast. Van Der Wiel said the urgency is to make sure a buyer comes in with capital to stock the stores in time for the holiday sales period. 

The Paper Store — which sells stationery, jewelry, home decor as well as fashion, sports and other products — joins a growing cohort of retailers searching for buyers in bankruptcy. It is also one of a handful of gift specialists to file for bankruptcy since 2019. The parent of the Papyrus stationery store filed bankruptcy and liquidated earlier this year. That followed Things Remembered's bankruptcy in 2019.