L'Occitane files bankruptcy as sales decline, leases become untenable

By Sarah Lizee

Olympia, Wash., Jan. 26 – L'Occitane, Inc. filed Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of New Jersey on Tuesday, according to a press release.

The company said the Chapter 11 process is necessary to right-size its brick-and-mortar presence following repeated attempts to negotiate with its landlords to address store lease terms.

“Like most retailers in the United States, the debtor has been impacted by the Covid-19 pandemic, which has significantly limited retail operations throughout the country and suppressed consumer willingness to shop in person,” Yann Tanini, the company’s regional managing director, said in a declaration.

The company’s retail revenue between April and December 2020 decreased by 56.5% compared to the same period during the prior year.

Even before the pandemic, the company was experiencing a decline in sales revenue from its brick-and-mortar boutiques, while its e-commerce revenue has dramatically increased. As a result, the debtor’s lease obligations were becoming increasingly untenable, prompting the company to assess and gradually reduce its lease portfolio.

“The profound and sustained impact of the pandemic, however, has forced the debtor to more aggressively address the rapidly widening gulf between its brick-and-mortar retail revenue and its substantial lease obligations, which no longer reflect the market,” Tanini added.

The company said that while it attempted to negotiate new lease terms with its landlords with the hope of achieving an out-of-court restructuring, the landlords have been reluctant to negotiate long-term adjustments to the leases.

Through the Chapter 11 case, the company intends to reject some leases in order to right-size its brick-and-mortar footprint.

As of the petition date, the debtor’s balance sheet reflects about $161.06 million in assets and roughly $161.66 million in liabilities.

Parent company L’Occitane International, SA is the debtor’s largest unsecured creditor, as it is owed about $26 million related to loans under a group cash management agreement, plus about $4.5 million for inventory, for a total liability of roughly $30.5 million.

Outside of L’Occitane International’s claim, the debtor’s largest liability is to its landlords. L’Occitane leases all of its 166 locations, as well as its corporate offices and distribution center, under operating leases that expire on various dates, with the longest lease term expiring in 115 months.

As of the petition date, the total amount of annual and monthly gross rent due to landlords on all leases is roughly $30.29 million and $2.52 million, respectively.

As of Dec. 31, the debtor’s total remaining lease obligations under the terms of its current leases is about $112.75 million. The debtor is $15.09 million in arrears on the leases.

The company said that it expects that the total amount of unsecured claims in its case will increase as leases are rejected.

Fox Rothschild LLP is the company’s general bankruptcy counsel, and RK Consultants LLC is financial adviser.

L'Occitane is a New York-based retail chain that sells and promotes beauty and well-being products. The company filed bankruptcy under Chapter 11 case number 21-10632.

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