Bankrupt Aeropostale lost its best remaining chance at a lifeline when a U.S. bankruptcy judge ruled Friday that private equity firm Sycamore Partners could use the $150 million it’s owed by the teen apparel retailer to bid at its bankruptcy auction, according to news reports.
Sycamore Partners and liquidators submitted their bids for Aeropostale last week, while investment firm Versa Capital Management — which was reportedly preparing a “stalking horse” bid that could have saved some 500 Aeropostale stores — did not, Reuters reported over the weekend.
With Sycamore free to leverage its “loan to own” ability, Aeropostale is most likely to fold, leaving thousands of retail workers without jobs. In a statement issued to Reuters, Aeropostale said it is disappointed with the court's decision, adding "Aeropostale stands by the accuracy and truthfulness of everything said and documented by it during the proceedings."
Sycamore’s objections to Aeropostale’s plans for survival had already pushed the retailer’s bankruptcy auction to Monday, and the court’s acquiescence to its “loan to own” plans are the death knell.
Aeropostale's last, best chance of survival lay with Versa, which specializes in distressed properties. Versa, for example, last year brought West Coast teen apparel retailer Wet Seal back from the brink, investing some $10 million to help right the company after prevailing at bankruptcy auction. But it doesn't look like Aeropostale will be privy to that kind of opportunity.
Sycamore has been a thorn in Aeropostale’s side during the bankruptcy process, and even before. The retailer sold a major stake to Sycamore in 2014, and that deal included an agreement to source with Sycamore-owned MGF, a clothing manufacturer and supply chain management company. The MGF partnership ended up being a drag on the company, and Aeropostale contends it is a major reason for its bankruptcy troubles.
The two sides reached a settlement in June requiring the retailer "to pursue a value-maximizing strategy for the benefit of the company's creditors by concluding a reorganization or sale of the company's assets during the company's back to school sales season," according to a statement emailed to Retail Dive.
Sycamore argues that mismanagement, not its sourcing stipulations, is the reason Aeropostale is bankrupt, and the firm now wants to leverage its $150 million in loans at auction. Aeropostale’s attorney told the court that would likely preclude any other offer.
Besides its myriad disputes with Sycamore, Aeropostale failed to adjust its merchandising, as rivals American Eagle and Abercrombie & Fitch have in recent years, after once-trendy logo-centric apparel fell out of favor with teenagers. Aeropostale also faced unique challenges including a customer base that skews younger than the other teen apparel stores, and above-average quality that has made its penchant for discounting that much worse for its bottom line, experts told Retail Dive.
“Aeropostale had this really strong brand in early 2000, but once the hoodies and graphic tees went out of style, Aero didn’t find a replacement strategy,” Shelley E. Kohan, VP of retail consulting at store analytics firm RetailNext, told Retail Dive. “Today Aero is all about price. They have this kind of junior customer who's not quite a fast-fashion customer, where Mom’s the real shopper, taking the 11-year-old into the store. So if that trend is off or too sexy for this kid, Mom’s not going to be buying that. So I think they’re missing the trend for that market.”