99 Cents Only Stores LLC’s stint as an Orange County-based company appears to be a short one.
The discount retailer, with over 370 “extreme value” retail stores in California, Arizona, Nevada and Texas, on April 4 said it would liquidate its operations.
The move comes a little more than a year after the company announced plans to relocate its headquarters from the City of Commerce to Tustin, where it was expected to have close to 200 employees at its nearly 40,000-square-foot local base.
“Unfortunately, the last several years have presented significant and lasting challenges in the retail environment,” former Interim Chief Executive Mike Simoncic said in a statement this month, citing the “unprecedented impact of the COVID-19 pandemic, shifting consumer demand, rising levels of shrink, persistent inflationary pressures and other macroeconomic headwinds, all of which have greatly hindered the company’s ability to operate.”
The company followed up on its liquidation announcement by filing for Chapter 11 bankruptcy protection on April 8, in Delaware. The company’s bankruptcy petition listed more than $1 billion in liabilities for the chain, whose top 10 creditors are collectively owed nearly $35 million.
While company statements pertaining to the liquidation and bankruptcy have cited City of Commerce as its base, court filings continue to cite Tustin’s Flight office campus as its headquarters.
99 Cents’ offices at the OC campus were open but largely empty as of last week.
Big Local Footprint
A closure of the discount chain could present an opportunity for other local chains to expand their presence in a market where retail space is in short supply; Orange County’s base of retail space counts a vacancy rate of around 4%, according to local brokerage data.
99 Cents’ base of OC retail locations totals nearly 400,000 square feet across more than 20 leased and owned stores, according to data from real estate market tracker CoStar Group Inc.
The largest concentrations of sites in OC are in Garden Grove, with four stores, and Huntington Beach, with three locations.
Among the chain’s largest sites in OC, at nearly 31,000 square feet, is at Santa Ana’s Bristol Warner Village mall.
Santa Ana has two 99 Cents locations, and city officials said last week those two spots employ nearly 50 people in total.
“We hope to see all of the affected workers land on their feet with new jobs and to bring new businesses to these storefronts that will benefit the community and surrounding neighborhoods as quickly as possible,” the city said in an April 8 statement.
99 Cents counts a trio of company-owned stores in OC, including a 38,100-square-foot spot in Fullerton, alongside locations in Foothill Ranch and Garden Grove.
Buyers, New Tenants
99 Cents officials said in court filings that 32 prospective buyers were contacted in recent months, including 20 prospective strategic buyers and 12 private equity companies.
The bankruptcy filing could slow down any prospective sale, one potential bidder said.
“It doesn’t mean we’re not going to go forward,” Mark Miller, the organizer of one investor group and the current chairman and chief executive of Pic ‘N’ Save, as well as previous president of Big Lots, told Los Angeles Magazine, “but it just makes it a little more difficult.”
Miller’s group includes past 99 Cents Only Stores executives.
Other potential bidders include competing discount retailers, such as Five Below or Daiso, Justin McMahon, senior vice president for the retail division of commercial brokerage JLL, told the Business Journal.
Each of those chains has about 10 locations in OC, with more in development, he said.
“They could be big winners if landlords are looking to keep the [discount] niche alive,” he said.
Going Upscale?
A closure of 99 Cents’ operations presents an opportunity for landlords to add more upscale tenants to their roster. One challenge: most 99 Cents Only locations, which average about 20,000 square feet, are considerably smaller compared to the major anchor stores that favor outdoor retail centers, such as grocery stores and big-box retailers, McMahon said.
Landlords might consider tenants such as specialty retailers and fitness centers as replacements, he said.
Both Five Below and Daiso perform well in more upscale markets, not just in centers that include discount retailers like 99 Cents, the broker said.
99 Cents Only said on April 4 they had brought in Northbrook, Ill.-based Hilco Global to liquidate all its stores’ merchandise and store equipment.
Simoncic, a managing director at restructuring and turnaround consulting firm Alvarez & Marsal, at the time of the bankruptcy filing stepped down from the top role at 99 Cents. Chris Wells, another managing director from the same firm, was appointed chief restructuring officer.
Last year’s relocation to Tustin followed a series of restructuring moves, including a 2019 recapitalization for the firm that included a $34 million cash infusion by a group that included Ares Management Corp. and institutional investors, which acquired 99 Cents in 2012.
