While discount retailers, including Marshall's, Ross Dress for Less and Costco, have been dominant and seem well-positioned for the future, just offering low prices has not guaranteed success.
Christmas Tree Shops and Tuesday Morning, for example, used a treasure-hunt model similar to the one used by Marshalls as well as its sister brands TJ Maxx and HomeGoods. Those two chains filed Chapter 11 bankruptcy and eventually went out of business.
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In fact, the past two years have been littered with failed businesses that used a variation of the discount model. Bed, Bath & Beyond, for example, went through a lengthy struggle before being sold in a Chapter 7 bankruptcy, then reemerging as a digital-only player under new owners.
The list of 2024 Chapter 11 bankruptcies in retail is long and includes many companies, like Party City and Zulily, that did not survive the reorganization. In other cases, like Joann and Big Lots, the retailers will continue but will close stores and have serious doubts about the future.
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Once a company files for Chapter 11 bankruptcy protection, it loses control of its fate. Even when it has a plan, it still needs the bankruptcy court to sign off, and even well-planned efforts sometimes fall apart.
That's why Kirkland's, a discount home-decor and -furnishings retailer, has been racing to control its expenses and manage its business to avoid a bankruptcy filing.
Image source: Benedikt Geyer from Pixabay
Kirkland's has been struggling
While the Brentwood, Tenn., company (KIRK) may not be the most familiar retail name in the U.S, it has a surprisingly large footprint. The chain operates 317 stores in 35 states as well as an e-commerce website, kirklands.com.
"Under the Kirkland's Home brand, the company provides its customers an engaging shopping experience characterized by a curated, affordable selection of home décor and furnishings along with inspirational design ideas," the website says.
"This combination of quality and stylish merchandise, value pricing and a stimulating in-store and online environment provides the company's customers with a unique brand experience."
The retailer recently estimated fiscal-fourth-quarter results. It expects net sales of around $148 million. Comparable sales overall dropped 0.6%, reflecting comparable- store growth of 1.6% and an e-commerce decline of 7.9% compared with the year-earlier period, Kirkland's said in a news release.
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Kirkland's made money. It estimated net income at $7.9 million and diluted earnings at 50 cents a share, reflecting a total share count of 15.8 million. It pegged adjusted earnings before interest, taxes, depreciation and amortization at $12 million.
The chain, however, does have some meaningful financial concerns.
At Feb. 17 the company had $41.9 million of borrowings outstanding and letters of credit under its revolving credit facility, "with availability of $8.2 million after the minimum required availability covenant, and $8.5 million in debt to Beyond Inc.," Kirkland's reported.
Kirkland's is closing underperforming stores
Kirkland's Chief Executive Amy Sullivan has made clear that the company will make tough choices. She said the company would improve or eliminate underperforming assets.
"Following a comprehensive review of our entire store footprint," Kirkland says, about 6% of its stores "do not meet our profitability standards in their current format, and we are aggressively taking actions to address these stores."
The moves include "strategically converting stores to a more margin-accretive brand, augmenting the assortment strategy to drive improved profitability through the term of the lease, and closing select locations to ensure our real estate investments align with our new standards," the company wrote.
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The evaluation process has not ended.
"As part of our ongoing transformation, we will continue to eliminate or convert underperforming assets to drive revenue growth and improve" profitability, it said.
Sullivan also plans to focus on improving the chain's online-sales performance. That includes an expanded partnership with Beyond.
"Through our collaboration with Beyond, we intend to leverage their expertise and partnerships to enhance site experience and improve conversion, while our internal team prioritizes profitability," Kirkland's said.
"With clear line of sight from our holistic channel analysis, we have begun strategic actions including eliminating [stock-keeping units] that do not meet margin standards after shipping, handling and returns," it added. SKUs are individual items in inventory for sale.
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