Retail turnarounds will continue throughout 2016, and it’s likely we will see more brands wind up in Chapter 11, as shifts in consumer shopping habits, coupled with the rise of e-commerce and fast-fashion, render many retailers overstored and financially unstable.
“The American household is still in the process of tightening its belt, the cross-currents of Internet competition are formidable, and we haven’t yet begun to see all of the consequences,” says James Tancredi, a partner at Day Pitney LLP. “We’re in a period of great transition,” says Tancredi. “It’s not distress. It’s transition.” But that ride is likely to end in a darker place, where some retailers don’t survive.
American Apparel’s Oct. 5 bankruptcy filing portends others in the industry. The Los Angeles-based basics retailer had a problem set all its own, including lack of merchandise and the high-profile ouster of founder Dov Charney for alleged behavioral misconduct. But some of the company’s problems – including overstoring, which means a retailer has too many brick-and-mortar locations or locations that are too large – are echoed by other brands.
In the past few years store closures in the name of restructuring have been announced by Gap Inc. (NYSE: GPS), Abercrombie & Fitch (NYSE: ANF), Aeropostale (NYSE: ARO), Sears (NYSE: SRH) and many others. Surfwear brand Quicksilver also ended up filing for bankruptcy back in September. For more on retail restructuring, see American Apparel's Bankruptcy Underscores Challenges for Retailers.
Scores of retailers are undergoing turnarounds, and as they’re forced to compete with the quickly-produced and inexpensive offerings of H&M, Zara and others, only the fittest will survive.