An e-commerce venture with the highest bid for Pier 1 Imports' intellectual property and online business was given approval by a U.S. bankruptcy judge to move ahead with the deal, giving the retailer's brand a shot of a future that won't have to be reliant on its 900 brick-and-mortar stores across North America.
The high bidder, Retail Ecommerce Ventures, an entity that was also the stalking horse bidder, is best known for acquiring the Dressbarn brand and its e-commerce business from Ascena Retail Group Inc. Retail Ecommerce Ventures is led by young entrepreneurs and Forbes-named top global business influencers Tai Lopez and Alex Mehr.
The $31 million bid, approved late Wednesday in the U.S. Bankruptcy Court for the Eastern District of Virginia, is higher than Retail Ecommerce Ventures' stalking horse bid of more than $20 million. In the same hearing, the judge also approved a motion to terminate three of Fort Worth, Texas-based Pier 1's leases, including two in Illinois and one in Texas.
The bid shows some investors are bullish on growing the online presence of retailers with a loyal following once steeped in brick-and-mortar real estate. It offers a glimpse at a strategy that could become more common as retailers file for Chapter 11 bankruptcy protection from creditors because the pandemic is keeping customers away from stores.
Pier 1 filed for Chapter 11 bankruptcy protection in mid-February before the pandemic hit, and because of the timing, it was unable to emerge from Chapter 11 as initially hoped because of state and local government mandates to close nonessential businesses to help mitigate the spread of the COVID-19 pandemic. The home goods retailer decided to wind down its operations and liquidate its more than 900 stores in the United States and Canada instead of restructure. Pier 1's stores are expected to stay open until at least October as they conduct liquidation sales, raising money that can be used to pay owed rent.
Because of the pandemic, U.S. retail Chapter 11 filings during the first half of the year were more than double the rate of the first half of 2019, and the trend is expected to accelerate for the second half of 2020, according to a report from retail consulting firm Information Clearinghouse.
Retail Ecommerce Ventures declined to comment on its Pier 1 bid until after the deal closes. Sycamore Partners, a New York private equity firm with holdings that include Belk and Talbots, is the backup bidder with an offer of $30.9 million and also declined to comment. A confirmation hearing of the sale is scheduled for Thursday, July 30. Pier 1 did not immediately respond to an emailed request for comment.
Until a vaccine or other solution for handling COVID-19 is found, retailers and restaurateurs will continue to face challenges in their businesses, said Mark Masinter, managing partner and founder of Dallas-based Open Realty Advisors who is not involved with the Pier 1 case.
"Through this whole debacle, we've seen an incredible uptick in online business," Masinter said in an interview. "Those with the right online infrastructure and organization have thrived during this process and so, what COVID-19 has done is expedited the adoption of online purchasing."
In the case of Pier 1, Masinter said he wouldn't be surprised if the new owners start "operating their online business only to see the need and the strategic importance of having brick-and-mortar stores again."
Masinter has worked with digitally native online companies like Warby Parker and Bonobos in real estate leases over the past several years in helping them set up physical stores to meet customer demand.
"Physical retail post-COVID will be more important than ever because at the end of the day, you can't replace the physical touch of a brand," he added. "I think you'll also continue to see an increase of direct-to-consumer activity."
It is also cheaper to get new customers and retain existing ones through brick-and-mortar compared with e-commerce, said Masinter, who expects the direct-to-consumer brands to continue to grow in brick-and-mortar stores.
The longtime real estate executive said he is working with tenants in his various shopping districts. In the trendy Knox-Henderson neighborhood of Dallas, Masinter is working with business owners, such as the owner of The Whippersnapper and other businesses, who was one of several Texas bar owners that filed a lawsuit against Gov. Greg Abbott's recent order shuttering bars once again throughout the state.
Steve Lieberman, chief executive officer of The Retail Connection, a Dallas-based retail real estate services firm, said the pandemic has shown retailers the necessity of having an omnichannel retail business and underscores, through limits placed by government mandates, the importance of face-to-face interaction in establishing relationships with customers.
"Brick-and-mortar retail is where the brand and relationships are built," Lieberman said in an interview. "The efficiency of online retail and the distribution network supporting it is good, but as soon as people have the opportunity to feel safe, they are going to want to have those social and consulted experiences. I also think disruption will lead to innovation and we're going to see a lot of innovative solutions come out of this to meet the challenges of this environment."
Lieberman said he expects to see even more retail casualties moving through this year, but ultimately lenders want landlords to be successful like landlords want tenants to be successful, and it will probably continue to take collaboration between all the players to help sustain businesses during this pandemic.
"This is going to be a tough year, but hopefully we can get a vaccine to create more certainty and a healthier environment," he added. "Until then, landlords and lenders are going to have to work together to level some of this pain."