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Zombie retailers close stores in Philly and nationally, hoping for an online afterlife

The Limited chain relaunched as an online-only brand last fall. Retail experts predict more retailers will be following The Limited's lead to save costs and as the value of the store as a giant billboard fades as more people shop online.

The Limited is hoping for a comeback as an online only retailer under new owner Sycamore Partners.
The Limited is hoping for a comeback as an online only retailer under new owner Sycamore Partners.Read moreDreamstime

"Everything dies, baby, that's a fact.
But maybe everything that dies someday comes back."
"Atlantic City"  by Bruce Springsteen

In retail, some brands that could no longer cut it with brick-and-mortar stores are getting a second wind in the digital world.

Take the apparel retailer the Limited, a fixture in malls that provided professional women with blazers, dresses, and trousers at midprice points. Its death was swift and sudden and reflected the impact of the online powerhouse Amazon on traditional retailers.

The chain announced on Jan. 7, 2017, that it would no longer operate stores. It shut all 250 of them in 42 states – including one at Oxford Valley Mall in Langhorne that's now an Austin5, along with its website. It filed for Chapter 11 bankruptcy protection a week later in U.S. Bankruptcy Court.

Another women's clothier, Bebe, also filed for bankruptcy and closed all of its stores to focus on selling online.

On Feb. 24, 2017, the private equity firm Sycamore Partners announced it had purchased the Limited's brand and website,  through a competitive auction as part of the bankruptcy proceedings.

Sycamore relaunched the brand's website last fall – sans stores – and promised to communicate with the Limited's loyal customers about how to obtain the merchandise "they know and love."

Sycamore, which specializes in consumer and retail investments, partners "with management teams to improve the operating profitability and strategic value of their businesses," the company mission states.

The firm's investment portfolio now includes Belk, Coldwater Creek, Dollar Express, EMP Merchandising, Hot Topic, MGF Sourcing, Nine West Holdings, Talbots, and Torrid. In fact, Limited merchandise is also available on belk.com or in Belk stores.

Limited.com is still in its first quarter of operation strictly as a web retailer. No sales figures are available and Sycamore, as a privately held company, declined comment on how the brand's online conversion has fared.

The idea of going exclusively digital runs counter to the strategy of some successful online retailers, such as the eyewear maven Warby Parker and the menswear retailers Bonobos and Tommy John, which are opening stores. But analysts say the online-only approach will likely continue due to the high costs of rent and staff and the decline in mall traffic.

"Wall Street is increasingly using the term zombie for any retailer that is struggling, as a kind of walking-dead euphemism," said Garrick Brown, head of retail research at Cushman & Wakefield.

The notion of the "zombie retailer" really came into vogue after the bankruptcy of Circuit City in 2008, Brown said. Though the retailer was liquidated, its intellectual property was bought in 2016 and the brand reemerged as an online consumer electronics retailer.

"But when it reappeared online, it was only the same company as before in name only," he said. "It was a retailer that died and came back to life but in a form that while familiar, was totally different. A zombie."

On Jan. 8 at the Consumer Electronics Show in Las Vegas, current Circuit City CEO Ronny Shmoel promised a relaunch using the latest and most advanced technology for "a new, more personalized online shopping experience" starting Feb. 15.

"With retail bankruptcies elevated, you are going to see more zombies in the next few years," Brown said.

Among the bankruptcies of 2017 were those of American Apparel, BCBG Max Azria, Rue21 and Wet Seal. Many were due to declining sales and a heavy debt load as the combined burdens were too much to bear.

"Most of the retailers that are struggling still have loyal core consumers," Brown said. "They just don't have enough of them. I think that if a brand is a household name, or if it has a positive reputation or brand cachet, it will be a candidate for this [digital focus]. Someone will eventually buy the intellectual rights for many of these brands and eventually they will start popping up online."

Retail analyst Simeon Siegel, executive director at Nomura/Instinet Equity Research, said pure e-tailers' physical stores validate the brick-and-mortar strategy. But "it is clear that certain companies may simply not be able to sustain them.  And if a company has no stores, it will have shed itself of painful fixed expense (i.e., rent)."

Marc Prosser, cofounder and publisher at FitSmallBusiness.com, an educational business website for small-business owners, also predicts online-only growth as the traditional need for storefronts as giant billboards declines.

"The value of having a large physical footprint is declining, as shoppers increase their online activity and malls lose foot traffic," Prosser said. "The costs and risks of launching a major online presence has fallen dramatically as technology has become cheaper and more standardized. The combination of lower costs for going online and less return from physical locations means more chains moving to online-only format."

How well the online shift works, he said, depends on whether the retailer has a good fit with the web, such as unique merchandise, a strong identity, or if the brand can provide services that mimic or provide the same benefits as store locations.

"It's not about just saving money, but about shifting your business and having different sets of costs," Prosser said. "No question it's going to increase."