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5 Retailers That Went Belly Up And Why

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    5 Retailers That Went Belly Up And Why

    While we may feel like retail historians will look back at 2016 and dub it the "year of bankruptcies," it's important to remember Chapter 11 isn't necessarily the end. Stores like Sports Authority and Aeropostale have a chance to come back—take American Apparel's rebirth as an example. Still, 55% of retail bankruptcies do end in liquidation.

    RetailDive threw together a list of failed retailers and Bisnow is zooming in on the top five bankruptcies and the lessons they offer.

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    1. Borders

    Founded: 1971

    Filed for bankruptcy: 2011

    Liquidated: 2011

    Borders was once the second-largest book retailer in the country and ran over 1,100 stores in 1995. But the company was shattered by a bad deal and underestimating the importance of e-commerce. The firm was bought by Kmart in 1992 but the deal didn't work out as planned, and many top Borders execs walked. Then Borders waited until 2008 to move online, but it was too late—Amazon had already taken too much of its market away and the firm never recovered.

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    2. Mervyn's

    Founded: 1949

    Filed for bankruptcy: 2008

    Liquidated: 2008

    This department store started as one shop in California and grew to 266 stores in 14 states by 2004, but its downfall came from increased competition and possibly even fraudulent action. Target's predecessor, Dayton-Hudson, bought Mervyn's in 1978 and it was overshadowed by its owner. Then in 2004 Target sold the company to three private equity firms, Cerberus Capital Management, Sun Capital Partners and Lubert-Adler, for $1.2B. Mervyn's went under in 2008 as high rent costs took their toll, but a 2008 investigation by Bloomberg alleges the three firms intentionally destroyed Mervyn's to enrich themselves.

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    3. KB Toys

    Founded: 1922

    Filed for bankruptcy: 2004, 2008

    Liquidated: 2009

    KB Toys used to be America's second-largest toy seller and the largest mall toy retailer, but competition from big-box retailers, poor business decisions and questionable action from one of its owners brought the toy store to its knees. The firm decided to stop selling popular video game consoles in an ill-fated move to cut costs just as Walmart and Kmart grew, and in 2000 the then-struggling retailer was bought by Bain Capital. 

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    4. Fashion Bug

    Founded: 1960

    Filed for bankruptcy: 2013

    Liquidated: 2013

    Known as a trendy and cost-effective place to buy plus-sized clothes, Fashion Bug filled strip malls countrywide and was considered to be the precursor to fast fashion. In the end, this store failed due to competition and owner Ascena Retail Group's decision to let the diminishingly profitable chain go to focus on its sister brand, Lane Bryant.

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    5. Tweeter

    Founded: 1972

    Filed for bankruptcy: 2007, 2008

    Liquidated: 2008

    Largely unknown to Millennials, Tweeter gained a reputation in the mid 1970s as the place to buy high-end audio gear—but heavy competition from off-price retailers eventually forced the company under. After sales began to dip in the late 1980s, CEO Jeff Stone cut costs and offered customers a price protection guarantee, saying Tweeter would refund the difference to its shoppers should they find a better deal elsewhere. The policy was a huge success but by 2004 the firm was in trouble again, this time from significantly cheaper stores like Walmart and Best Buy. Eventually this competition proved too much and forced the firm to declare Chapter 11 bankruptcy before moving to liquidation.