New York—Unlike its irrepressible designer known for her runway antics, Betsey Johnson LLC isn’t turning any cartwheels today: on Thursday the company filed for Chapter 11 bankruptcy protection.
Citing “severe liquidity problems’ and a debt of more than $4.1 million, the company is expected to close most of its 63 branded stores, eliminating more than 350 employees.
It’s been no surprise that Betsey Johnson has been struggling. The recession hit the company particularly hard with sales falling more than 20% since 2007 with profits cut in half. In 2010, company founders Betsey Johnson and Chantal Bacon sold a stake to Castanea Partners, a private equity firm. Forced to restructure its debt and unable to meet loan agreements, the company gave up a rights to license the Betsey Johnson name to Steve Madden Ltd. which forgave a $48 million loan. Castanea holds a 90% stake in the company; Steve Madden 10%.
Earlier this year Betsey Johnson LLC began looking for strategic alternative including a sale, hiring Morpheus Capital and Advisors LLC to help find equity investors or sell the company, according to the bankruptcy filing.
Evidently Morpheus reached out to 22 potential buyers and investors, and one was apparently in the final throes of a deal when the buyer “abruptly” pulled out of the deal. Unable to come up with another suitable buyer, the company filled Chapter 11 to either find another owner to continue or liquidate.
Johnson Remains as Creative Director
Despite the Chapter 11 filings, Betsey Johnson and her brand are far from disappearing anytime soon. Steven Madden reportedly will keep open a handful of the Betsey Johnson stores in New York. And Johnson herself will continue designing.
“I love our brand!” Johnson said in a statement. “As creative director, it’s full speed ahead at Betsey.”
Last week, the Style network announced that Johnson and her daughter would star in a new reality TV series named “Betsey + Lulu.”
Steven Madden licenses Betsey Johnson across a number of categories including footwear, swimwear and intimate apparel and plans to continue to support the company including fulfillment of existing orders. Betsey Johnson merchandise is carried in leading retailers including Saks Fifth Avenue, Bloomingdale’s and Nordstrom.
“While this particular licensee may be closing, the Betsey Johnson brand is stronger than ever, with a thriving wholesale business across a range of product categories,” Steve Madden told reporters. “As the owners of the Betsey Johnson brand, we at Steve Madden remain firmly committed to Betsey Johnson — the designer, her vision and our growing wholesale business – which is up over 50% so far for 2012.”
During bankruptcy proceeding, the company has asked for Debtor-in-Possession (DIP) financing of $2.5 billion to continue operations. Among the company’s largest creditors are Haskell Jewels, American Express and FedEx.
Betsey Johnson was founded in 1978 by Johnson and Bacon, a former model.