Dots Joins Clothing Retailers Filing for Bankruptcy

Dots LLC, the 400-store clothing chain for young women, filed for bankruptcy protection, blaming prior management, the economy and leases that cost too much.

The company, founded 27 years ago outside Cleveland, has arranged to borrow $36 million to keep operating as it reorganizes under court protection and implements a new merchandising strategy, according to an e-mailed statement.

Regional clothing chains have had a difficult time competing with bigger companies such as TJX Cos. and Hennes & Mauritz AB. Loehmann’s Holdings Inc., the New York-based discount fashion retailer, filed for bankruptcy last year and is liquidating its assets. Syms Corp. and its Filene’s Basement unit filed in 2011 and became a real-estate holding company to liquidate assets and pay creditors.

Dots said in its Chapter 11 filing in Newark, New Jersey, that it’s running low on cash. In October, vendors began demanding Dots pay for new goods faster than the company could afford, “causing significant liquidity challenges,” Chief Executive Officer Lisa Rhodes said in a court affidavit filed yesterday.

Dots, based in Glenwillow, Ohio, built a reputation for quality, low-cost goods, said Rhodes, who was a senior vice president in Wal-Mart Stores Inc.’s clothing division before joining Dots, which operates in 28 states.

Traditional Customers

To turn around Dots, Rhodes said, the company will try to bring traditional customers back and seek new investors to keep the company operating, she said. A sale of “some or all” of the business is also possible, according to the company.

“Beginning with the hiring of a new, highly experienced management team in the second half of 2012, Dots instituted a repositioning strategy to address its operating challenges and recapture its core customer base,” Rhodes said in the affidavit.

Other troubled retailers have found a way to stay out of bankruptcy court. Sycamore Partners LLC bought women’s clothing seller Talbots Inc. in 2012 and Hot Topic Inc. last year, while Pacific Sunwear of California Inc. secured $160 million in financing from Wells Fargo & Co. and private-equity firm Golden Gate Capital in December 2011 and said it would shut about a quarter of its stores.

‘Chronically Underperforming’

Dots, which employs about 3,500 people, said it plans to seek court permission to cancel some store leases. The chain has identified 36 stores that are “chronically underperforming,” in part because of their leases or locations.

For the 12 months ending Jan. 31, the company had about $293.7 million in sales, Rhodes said. That’s down from $338.8 million in the previous 12 months and $346.2 million the year before that.

The company owes Salus Capital Partners about $30.6 million and has about $47 million in unsecured debt owed to various creditors, including vendors.

Irving Place Capital Management LP bought the chain in 2011, citing the growth potential of its lower-priced fashion model. The retailer targets shoppers from 25 to 35 and operates in the Midwest, East and Southeast regions of the U.S.

Irving Place, based in New York, has invested in retail brands including teen clothing chain Aeropostale Inc., Vitamin Shoppe, Seven for All Mankind jeans and Stuart Weitzman shoes.

Bob Glick opened the chain’s first store in 1987, selling nothing for more than $10. The company evolved into an affordable-fashion seller, and in 2008 introduced its own brand.

The case is In re Dots LLC, 14-bk-11016, U.S. Bankruptcy Court, District of New Jersey (Newark).

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