Diesel USA Bankruptcy : A Restructuring Plan for Survival
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Case Code: BSTR587 Case Length: 10 Pages Period: 2008-2019 Pub Date: 2019 Teaching Note: Available |
Price: Rs.300 Organization: Diesel USA Inc. Industry: Textiles & Apparel Countries: Italy Themes: Corporate Strategy, Bankruptcy & Turnaround Management |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Difficult Times
While Diesel USA was profitable up until 2008, it suffered amid the downturn of the brick-and-mortar retail industry following the global recession. The global recession impacted its balance sheet and continued to affect the company’s profits for a decade from 2008 to 2018 (See Exhibit II for Net Sales & Losses of Diesel USA)). However, after the peak recession years of 2008-2010, Diesel USA began to see some improvements between 2011 and 2014. But the downturn in the retail sector, as well as weak sales amid a consumer shift to online retailers, badly affected its business...
Bankruptcy Filing
After years of falling sales, growing losses, expensive leases, and inflexible landlords, Diesel USA moved to save itself from creditors and filed a voluntary petition for relief under Chapter 11 bankruptcy on March 5, 2019. "The filing is a critical step in enabling Diesel USA to address certain long-term liabilities for a healthier and stronger business in the country, building a dynamic brand presence in line with the evolving US retail environment," said Diesel in a statement. “This procedure opens the way to a redefinition of the brand’s geographic footprint in the US." The company viewed Chapter 11 as being essential to maintain the stability of its business operations, while preserving goodwill among customers and business partners. In the petition, the company mentioned that it had a lump sum of US$50-US$100 million in assets and US$10-US$50 million in liabilities...
Recognization Business Plan
Diesel USA unveiled a plan to recover its footing in the US. Unlike several other retailers, such as Payless Inc., Victoria’s Secret , and Gap, Inc., which had reduced their footprint and closed stores following bankruptcy, Diesel intended to breathe new life into its US brand after its bankruptcy. The company had a loyal customer base in the market and in some US stores. Besides, its wholesale and online operations were profitable. In the court filing, Diesel USA said it had no plans to close down its stores. Instead, it intended to eliminate some of its 28 stores, where landlords’ refusal to offer lease concessions had led to heavy losses for the company...
Looking Ahead
The new management team expected its reorganization plan to help the brand return to stand-alone profitability by 2021. “We remain fully committed to the US market, a unique and fundamental window to an important player globally,” Diesel said. Some industry observers opined that the redefinition of the brand would help the company incorporate some changes for Diesel USA in 2019, including reviewing most of its retail store network and ensuring its retail footprints met the needs of both existing and new consumers...
Exhibits
Exhibit I:Diesel's Y-o-Y Growth (From 2013-2018)
Exhibit II: Net Sales & Losses of Diesel USA (2008-2018)
Exhibit III: Diesel USA's Annual Net Sales by Channel (USD/000)
Exhibit IV: Chapter 11 Bankruptcy Filing
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