Medical apparel supplier Careismatic Brands became one of the latest companies to fall into bankruptcy, citing the supply chain woes of recent years — among other issues — in explaining its financial collapse.
The company’s restructuring officer describes it as a “market leader in the $3 billion domestic medical scrubs industry,” but Careismatic’s annual revenue has fallen nearly 19% since its peak in 2021, when the still-raging COVID-19 pandemic heightened demand for Careismatic’s products.
Those early pandemic buying spikes acted to “validat[e] the Company’s investments into new brands, technologies, and manufacturing capacity,” said Kent Percy, a partner and managing director at AlixPartners who is acting as Careismatic’s chief restructuring officer. Since demand has normalized, though, the company has faced a combination of flagging sales and increased operational headaches and costs.
“Beginning in 2021, rising interest rates, supply chain delays and the cost of materials, labor, and fuel, led to increased costs and reduced margins across Careismatic’s portfolio,” Percy said.
The California-based company, which operates a 1-million-square-foot distribution facility in Texas, sells to some 2,300 wholesale customers, including hospitals and other medical providers. The company also lists Walmart as a major customer, with Careismatic providing the retail giant with exclusive branded scrubs and other apparel.
Owned by private equity firm Partners Group, Careismatic has grappled with growing competition as a supplier even as demand has weakened. While its sales to physical retailers have typically made up the majority of its sales, newcomers selling online have forced it to invest in its direct-to-consumer operations.
As its financial condition weakened, Careismatic looked to revamp operations both to reduce costs and grow its omnichannel capabilities. The company has “sought to rework its facilities and warehousing footprint and capture savings through new third-party logistics providers,” Percy noted.
The combination of rising operational costs, falling demand, intensifying competition and nearly $833 million in debt created a liquidity crunch that sent it into bankruptcy on Jan. 22 with plans to restructure the company and its balance sheet.
As is common in bankruptcies, one of its first moves was to ask approval of the federal court overseeing its Chapter 11 for Careismatic to pay its critical suppliers and other vendors.
The company’s sourcing and business rely on more than 1,400 vendors. For its request to the bankruptcy court, the company narrowed it down to a list of critical suppliers that, as the company put it, “are so essential” to its business that “the lack of any of their particular goods or services, even for a short duration, could significantly disrupt” its operations and “cause irreparable harm to the Debtors’ businesses, goodwill, and market share.”
Careismatic went into bankruptcy owing tens of millions to suppliers. One of its largest unsecured creditors, for example, is Hong Kong-based Leopard Textiles Holding, which Careismatic owes about $2.2 million.
The company has received interim approval to pay its critical vendors $21.6 million. In total, Careismatic aims to pay $36 million to its critical vendor base.