A number of companies that appeared to benefit from a takeover by private equity companies at a gentler time for fashion retail are finding themselves heading into an uncertain future dragging along billions of debt that is growing more unmanageable. According to WWD, this is the case with Neiman Marcus, J. Crew, Sears, The Limited and others. The Limited, debt-laden and owned by Sun Capital liquidated in January. Wet Seal owned by Versa Capital also liquidated. Rue 21 is struggling under the ownership of Apax Partners and closing several hundred stores. Gymboree, taken private by Bain Capital in 2010 in a deal estimated at $1.8 billion, is a potential bankruptcy. Neiman Marcus, which passed from TPG and Warburg Pincus to Ares and Canada Pension Plan in 2013, is now laden with $4.6 billion in debt. Hudson's Bay is apparently interested but the deal is complicated by Neiman's move to cordon off Mytheresa.com and three stores away from lenders. While there have been some successes such as David's Bridal, Cole Haan and Quiksilver, where the investors have cut costs, boosted margin's and sometimes switched business model, there are many failures, especially when growth is not happening. Pershing Square Capital admits that its biggest failures were Borders, Target and JC Penney, where it replaced Mike Ullman with Ron Johnson. The private equity model, it is sometimes argued, was intended for industrial companies with a different set of physical assets, when retailers have almost none once you have taken care of the stores. However, it is not likely to stop soon with the high number of high-profile distressed companies in the US today.

Illustration 'Private equity is probably bad for US retail' (jpg - 0.05Mo)