Case Study: Coldwater Creek

Each year groups of retail industry leaders, investors, analysts, and experts look at the retail industry and try to estimate the overall health of the economy. Recently, a number of retail stores have already decided to close their doors for good. For some companies that just means one or two of their storefronts, for others it means declaring bankruptcy and liquidating their inventory from each and every store.

Among the several U.S. retailers going out of business is the Sandpoint, Idaho-based company Coldwater Creek. Coldwater Creek is a women's clothing store founded in 1985. In recent months the store has taken a hard beating from the lack of consumer spending happening around the country. Because of this and their inability to find a new buyer, the company chose to file for chapter 11 bankruptcy in the U.S. Bankruptcy Court in Wilmington, Del., on April 11, 2015.

Reminder: What is Chapter 11

Chapter 11 cases are typically filed by corporations, partnerships, and limited liability companies. Individuals are allowed to file under Chapter 11 if they have so much debt or income that they don't qualify under Chapter 7 or Chapter 13. But usually an individual would prefer to file under 7 or 13 rather than take the risks associated with filing under a Chapter 11.

A Chapter 11 plan allows a debtor to reorganize and restructure their financial affairs. A Chapter 11 can actually be considered a contract in a way, between the debtor and its creditors. It's a deal about how the debtor will operate in the future to insure they can pay all of their future obligations. The plans generally provide downsizing of the company in some way to free up assets. In some cases the plans are called "liquidating plans" which is a proposed total shutdown of the debtor's operations and a sale of all the remaining property after such.

Such was the case for Coldwater Creek, the filing was done in an effort to wind down the business and help it go out with grace. There are approximately 365 stores and 6,000 employees that were affected by this unfortunate situation. Stores began to liquidate their prices, giving store fans one last chance to do some Mother's Day shopping last year before the stores completely shut down.

Coldwater Creek's website currently pays tribute to their loyal customers by publicly thanking them on the the site. "On behalf of all of us at Coldwater Creek, it has been a privilege to serve you, and it is with deepest gratitude that we thank you for your loyalty and your business over the past 30 years."

So what does this mean for retailers similar to Coldwater Creek? Is the economy in such a rut that they're doomed to bankruptcy as well? Certainly the liquidation and shut-down trends of 2014 don't seem to be setting a good precedent for the upcoming years.

Surprisingly enough though, U.S. retail sales would state otherwise. Retail sales data seems to predict an upswing in economy because consumer spending is currently 70% of total U.S. economic output.