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Law360 (January 26, 2021, 11:01 AM EST) -- Cosmetics company L'Occitane Inc. filed for Chapter 11 protection in New Jersey bankruptcy court Tuesday, outlining plans to shutter nearly two dozen locations as the retailer grapples with roughly $161 million in liabilities.
L'Occitane Inc. filed for Chapter 11 bankruptcy protection Tuesday with more than $100 million in debt, saying it plans to close almost two dozen locations. (Photo by Ben Gabbe/Getty Images)
"Although difficult, it is believed that closing boutique locations and rejecting leases is necessary especially in light of the new realities brought on by the pandemic, and will help maximize recovery for creditors," Tanini said in the declaration.
L'Occitane — whose parent L'Occitane International SA and affiliates have not initiated bankruptcy proceedings — filed its Chapter 11 petition after failing to strike a deal with landlords in an effort to achieve an out-of-court restructuring, Tanini said. Landlords "generally exhibited reluctance to negotiate long-term adjustments to leases," Tanini said.
As of Tuesday, at least 13 landlords "have commenced actions for amounts due under leases, and dozens more have issued demand letters," according to Tanini.
L'Occitane marks the latest retailer to be caught in the long shadow of the pandemic, joining the ranks of J. Crew, Brooks Brothers and other businesses that have sought relief in bankruptcy court.
The company's financial woes started even before the pandemic as fewer shoppers visited L'Occitane stores, even while its e-commerce sales rose, Tanini said. But that trend "greatly accelerated" during the outbreak as the company curtailed its store operations in light of government measures aimed at curbing the spread of the virus, Tanini said.
Between April and December, sales from its brick-and-mortar locations dropped by 56.5% as compared to the same period in 2019, Tanini said. Those retail sales have gone from nearly two-thirds to slightly more than a third of the company's total net sales, Tanini said.
Meanwhile, the company's e-commerce sales have jumped by 72% since April and now represent nearly half of its overall net sales, Tanini said.
L'Occitane "simply is not generating enough revenue from brick-and-mortar sales to meet its lease obligations," said Tanini, adding that "it may be years before brick-and-mortar retail sales return to pre-pandemic levels, if ever."
"In the meantime, the debtor's lease obligations, which unfortunately no longer accurately reflect the market, will become an increasingly heavy anchor for the debtor and may ultimately threaten the debtor's viability," Tanini said.
"Relief in Chapter 11, and in particular, the rejection of certain burdensome leases, is necessary to enable the debtor to adapt to the new economic realities with the goal of bolstering the debtor's long-term viability and preserving the debtor's workforce," Tanini said.
L'Occitane International represented the company's largest unsecured creditor as of Tuesday, with a total liability of about $30.5 million, according to Tanini.
Besides that claim, the largest liability facing L'Occitane is to its landlords, Tanini said.
As of Tuesday, the total amount of annual and monthly gross rent due to the landlords is about $30.2 million and roughly $2.5 million, respectively, Tanini said. By Dec. 31, the company's total remaining lease obligations was about $112.7 million, Tanini said.
Tanini added Tuesday in a statement that the bankruptcy filing is "a pivotal step forward in achieving the full potential of L'Occitane's U.S. business."
"Over the past year, we have moved aggressively to address COVID[-19]-related challenges head on, developing innovative new ways to connect with our community and continue to deliver the extraordinary L'Occitane beauty experience that our customers know and love, all while accelerating the essential transformation of our store footprint already underway," Tanini said.
"We look forward to working collaboratively with our landlords to achieve partnerships that make economic sense in this current retail environment and best position our marquee brand's boutique offering for years to come," he added.
L'Occitane is represented by Mark E. Hall, Martha B. Chovanes and Michael R. Herz of Fox Rothschild LLP.
The case is In re: L'Occitane Inc., case number 3:21-bk-10632, in the U.S. Bankruptcy Court for the District of New Jersey.
--Editing by Alyssa Miller.
Update: This article has been updated with additional information on the case.
For a reprint of this article, please contact reprints@law360.com.
