Dive Brief:

• Christmas Tree Shops, a home decor, furniture and discount gift retailer, filed for Chapter 11 bankruptcy protection on Friday.
• The move comes about three years after Bed Bath & Beyond — now itself in bankruptcy — sold the chain to Handil Holdings, the current owners.
• According to the filing in federal bankruptcy court for the District of Delaware, Christmas Tree Shops has between $50 million to $100 million in liabilities, up to $50,000 in assets and up to 49 creditors. The company’s top six creditors are each owed more than $1 million.

Dive Insight:

Macroeconomic factors, including the continuing impact of COVID-19, along with a lack of liquidity, overdue obligations to creditors and a resulting pullback on SKUs have all contributed to Christmas Tree Shops filing to reorganize its business under Chapter 11 protection.

The Massachusetts-based retailer secured $45 million in debtor-in-possession financing from Eclipse Business Capital and ReStore Capital, according to court documents.

As part of the Chapter 11 reorganization, Christmas Tree Shops will seek court approval to close up to 10 stores.

The company’s roots go back to the 1950s when The Christmas Tree Gift Shop, which now calls itself CTS, opened as a seasonal gift shop near Cape Cod, Massachusetts. In 2003, Bed Bath & Beyond acquired the company, expanding it beyond the Northeast.

By November 2020, Handil Holdings bought the Christmas Tree Shops banner from Bed Bath & Beyond. At the time of its filing, the retailer operated 82 brick-and-mortar locations in 20 states.

Following the sale, CTS rebranded to better reflect an everyday shopping experience and de-emphasize the focus on holiday merchandise. The company also invested in product mix and consolidated distribution, all which “paid immediate dividends,” according to Marc Salkovitz, executive chairman of Christmas Tree Shops and Handil Holdings. In the 10-month period from February through December 2021 Christmas Tree Shops’ revenue was approximately $597 million and its EBITDA totaled approximately $16 million. That was the highest level in the business’s history, which generated a net income of almost $6 million.

However, macroeconomic factors negatively affected the company last year. Since May 2022, customer traffic decreased by approximately 35% and the average basket size decreased by 25%.

In 2022, CTS’s revenue was approximately $544 million and its EBITDA was negative $45 million.

Right now, the company lacks liquidity and with “substantial overdue obligations to creditors, CTS has not been able to purchase the unique, large assortment of inventory SKUs it typically offers. As a result, ‘impulse items’ are unavailable to consumers and ‘basket size’ remains smaller than usual,” Salkovitz said.

"Based on public filings, the bankruptcy case is a true 'balance sheet restructuring' with a senior debt resolution and an opportunity to shed isolated non-performing locations," Derek Baker, a partner and attorney at the Reed Smith law firm, told Retail Dive. "The company reports that it will continue to operate its more than 70 locations with 'business as usual' and is using the bankruptcy case merely to right size [its] balance sheet and to eliminate certain burdensome leases and debt."

In 2019, Christmas Tree Shops stopped selling merchandise through its website, according to Chain Store Age. That move might have been a mistake according to Christian Piller, co-founder and chief commercial officer of e-commerce tech company Pollen Returns.

“Digitalization, which requires technology investment and integration, is important to a seamless, online shopping experience all the way through returns,” Pillar said. “Companies that have not made the necessary investments in technology have had public struggles, like Southwest Airlines, or have gone or will go bankrupt like Bed Bath & Beyond and Christmas Tree Shops.”

Pillar said companies that don’t adopt this mindset “will struggle when long-term risks become short-term and are most likely to be disrupted by others that have appropriately factored risk into their planning processes. For example, consumers adapting to more non-traditional weddings is a risk that David’s Bridal did not properly contemplate.”

But in 2020, shortly after purchasing the company, Salkovitz told Forbes that the store’s loyal customer base was a key reason they decided to buy the brand and work to grow it. At that time, their operational strategy included shifting merchandising to focus more on food, consumables and home goods and less emphasis on health and beauty items.

As of Monday afternoon, the company had not acknowledged the bankruptcy filing on its social media profile. A posting on Facebook from late last week featured a video of its recently opened Albany, New York, store. “Stocked shelves and great prices…it’s beautiful! Our Albany, NY location is ready for CTS-ing!” the company said.

But despite separating from Bed Bath & Beyond and rebranding, "Christmas Tree Shops is in bankruptcy probably for the same reasons as Bed Bath & Beyond but with less of a lead-up,” Ted Gavin, managing director and founding partner of Gavin/Solmonese, a corporate recovery firm, said in emailed comments. “It's another store that sells everything (except Christmas trees, apparently?), and you can still get that stuff easier from Amazon.”