Once popular brands that find themselves unable to compete through conventional store channels, such as Wet Seal, American Apparel, and Linens ’N Things, might have lost some customers. But clearly, there are still plenty of people who like and appreciate the offerings these retailers provide; it is not as if every single shopper who once frequented The Limited, for example, stopped liking its clothing all at once. Thus, even if the brands themselves declare bankruptcy and halt their operations, there still may be a market for their products.

Recognizing this alternative market and prime opportunity, some purchasers of such bankrupt brands pursue a rapid transition to online sales channels. By snatching up the brands’ names, designs, and other intellectual property, these buyers seek to sell off any remaining inventory but also reinitiate the manufacturing of popular items to be sold online. Thus customers still can access their favorite brands online, which probably is their preferred shopping channel anyway—and a big part of the reason that retailers that previously relied on mall traffic found themselves in bankruptcy court.

The benefits for the new brand owners are many. They get to leverage a valuable, well-known brand name without having to invest the time or effort to build that brand name. In addition, because running an online channel is substantially less expensive than maintaining brick-and-mortar operations, the operating costs for these producers are much lower. Beyond the costs of the stores themselves, these new owners do not need to invest in extensive customer service or marketing efforts.

Yet the challenges are also multiple. The new owners must move quickly, because the longer a brand is unavailable, the more likely customers are to move on to a different option. To transform the brand into an online operation, they also must radically redesign the supply chain, to ship the products to consumers’ homes rather than to stores. Such efforts generally require the assistance of expert logistics providers, as well as careful negotiations with shippers to ensure that the costs are reasonable. Such demands, for rapid but expansive changes, have created a new class of businesses, specializing specifically in the transformation of bankrupt brick-and-mortar retailers into new online models.

For some of these expert companies though, the online-only channel is a temporary plan. They seek to return to omnichannel operations once the online business ensures that the brand can turn a profit again. They have invested millions to purchase the bankrupt brand’s assets. They need to earn as much as they can to ensure a return on such investments.

Discussion Questions:

1. What channel is more profitable, online or in-store?
2. Should these bankrupt brands seek to return to in-store operations or remain as online-only options?

Source: Erica E. Phillips and Stephanie Gleason, The Wall Street Journal, August 4, 2017