Aeropostale Inc., the teen-clothing chain, filed for bankruptcy protection after battling its main supplier and closing hundreds of stores to stem years of losses.
The latest in a spate of high-profile retail bankruptcies was filed Wednesday in the United States Bankruptcy Court for the Southern District of New York. It follows meltdowns by American Apparel Inc., Quiksilver Inc. and Sports Authority Inc. For more see, Retail Outlook: More Deals, More Bankruptcies Ahead and American Apparel's Bankruptcy Underscores Challenges for Retailers.
Mall-based retailers like Aeropostale have struggled to adapt to competition from online merchants and the changing tastes of teenagers. The New York-based company has also had to contend with fast-fashion competitors, who react to trends more quickly and get new styles on shelves sooner.
Since 2013, New York-based Aeropostale has closed about 215 stores, Poonam Goyal, a senior retail analyst at Bloomberg Intelligence, said in a report in April. The company has more than 700 locations left in the U.S., about 60 percent of which are approaching the end of their leases, which means more closings are likely, Goyal wrote.
Aeropostale intends to emerge from the Chapter 11 process within the next six months as a standalone enterprise with a smaller store base. It is also continuing its previously announced sale process, and expects any potential sale would be expected to be completed within the next six months, it said in a statement.
The company said it secured a commitment for $160 million in debtor-in-possession financing from Crystal Financial LLC, which, combined with operating cash flow, will allow the retailer to meet financial commitments.
Bankruptcy can make shuttering stores easier because of rules that allow companies to cancel contracts, including leases. But the U.S. Bankruptcy Code also grants landlords rights they can exercise to pressure a retailer into reorganizing quickly or liquidating.
Aeropostale’s filing follows three straight years of losses and a feud with its main lender, Sycamore Partners, which also owns a key clothing supplier, MGF Sourcing. Aeropostale said in March that MGF was holding up the delivery of merchandise and violating the terms of its agreement. The retailer said on April 15 that it would delay filing its annual report because it was distracted by the fight with MGF. For more on lending, see Turnaround Talk: Sears' New Loan Receives Mixed Reviews.
In March, Aeropostale tapped Stifel Financial Corp. to help assess a possible sale or restructuring. The company also is working with law firm Weil Gotshal & Manges LLP and FTI Consulting Inc. on the filing.
Suppliers to the U.S. retailer includes Hampshire Group Ltd., a New York-based maker of sweaters, and Hong Kong’s Li & Fung Ltd., which also supplies clothing and toys for major retailers such as Wal-Mart Stores Inc., according to supply chain data compiled by Bloomberg. A spokeswoman for Li & Fung said the company declined to comment.
Aeropostale on Wednesday also announced it will close 113 U.S. locations, as well as all its 41 stores in Canada. The retailer listed $390 million in total debt and about $354 million of assets in its Chapter 11 petition.
The case is In re Aeropostale Inc., 16-11275.