Judge Sean Lane of the U.S. Bankruptcy Court in New York on Monday approved the $243 million sale of bankrupt teen apparel retailer Aeropostale to a group of mall landlords, liquidators and licensing company Authentic Brands Group, which had posted their bid Sept. 2, the Wall Street Journal reports.
The surprise move spearheaded by landlords Simon Property Group and General Growth Properties came late in Aeropostale's bankruptcy process, after private equity firm Sycamore Partners (an Aeropostale stakeholder) and liquidators submitted bids while investment firm Versa Capital Management — which was reportedly preparing a “stalking horse” bid — did not. Lane had allowed Sycamore to leverage its loan for its bid, and a Sycamore win would have effectively ended the retailer's chances of survival.
Lane's decision to approve the consortium bid means that 229 mall-based Aeropostale stores likely will remain open, saving more than 7,000 of the retailer's jobs. Aeropostale will now seek approval for changes to an order that will allow it to access its lenders’ cash; that hearing is scheduled for Sept. 22.
Aeropostale has defied the odds and many observers’ expectations: The retailer is now officially free to sell T-shirts to young teenagers another day, although it still faces long odds.
While Aeropostale's myriad disputes with Sycamore are likely behind it at long last, the retailer still must grapple with its past failure to update its merchandising for contemporary tastes. While rivals American Eagle and Abercrombie & Fitch in recent quarters successfully veered from their signature logo-centric fashions that have fallen from favor with today’s teens, Aeropostale still has such items on its shelves.
Aeropostale also faces unique challenges, including a customer base that skews younger than other teen apparel stores. “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," Shelley E. Kohan, VP of retail consulting at store analytics firm RetailNext, told Retail Dive earlier this year. "So if that trend is off or too sexy for this kid, Mom’s not going to be buying that. I think they’re missing the trend for that market.” Kohan also says that Aeropostale's merchandise is of high quality, while its prices are bottom-of-the-barrel, a margin-killing approach that is unsustainable.
Aeropostale nevertheless remains optimistic. In the immediate wake of the auction, Aeropostale said in a statement that it’s back “with new ownership as a financially stronger company positioned to compete and succeed in an evolving retail landscape.”
Aeropostale is not the only teen apparel retailer enjoying a new lease on life. Pacific Sunwear of California also won court approval to exit Chapter 11 bankruptcy earlier this month: Under the plan approved by U.S. Bankruptcy Judge Laurie Selber Silverstein, private equity firm Golden Gate Capital will own the reorganized PacSun, slash its outstanding debt to $30 million from $88 million and invest some $20 million (probably in the form of new debt).
PacSun's smooth reorganization process and freedom from much of its debts is “every distressed retailer’s dream,” Poonam Goyal, a retail analyst with Bloomberg Intelligence, told Bloomberg. But she also questioned whether the retailer will effectively bounce back.