Unable to face the challenges of the competitive market, edging towards fast-fashion and online platforms, US-based teen clothing retailer of casual wear Aeropostale Inc finally succumbed to the pressure and filed for Chapter 11 bankruptcy protection on Wednesday.
During the process, the company plans on keeping itself afloat through a $160 million loan from Crystal Financial LLC, along with operating cash flow.
Also Read – Aeropostale most likely to file for bankruptcy this month
The company expects to come out of bankruptcy within six months, with a clear resolution of its disputes with former shareholder Sycamore Partners that had thrown a lifeline of $150 million into Aeropostale in 2014.
“Aeropostale will likely emerge from Chapter 11 as a leaner entity with a smaller, but largely profitable, store base…but it does not solve the issue of relevance to the market,” chief executive of research firm Conlumino Neil Saunders said on the company’s chances of progressing towards a healthy outcome.
The mall-based speciality retailer said it would close 113 stores in the US and all of 41 stores in Canada.
“Rethinking the brand’s proposition is key to improving prospects. Chapter 11 buys Aero time and space to undertake this rethink. In itself does not provide a long-term solution,” Saunders added.
Back in March, Aeropostale said it was mulling over a change in its strategy, including sale and restructuring, citing dispute with a vendor, MGF Sourcing US, an affiliate of Sycamore Partners.
Also Read – Aéropostale posts drop in sales in Q4FY16
The difficult market, created by the immense competitive pressure exerted by online retailers and fast-fashion retailers such as H&M, Forever 21 and Inditex’s (ITX.MC) Zara, has led to several traditional apparel retailers to explore strategic options. While American Eagle Outfitters Inc and Abercrombie & Fitch Co have managed to turn around their businesses with their quick thinking and fast response to the changing fashion trends, others like American Apparel Inc, Quiksilver Inc and Sports Authority Inc had been forced towards bankruptcy filing in the past one year.
