Reorganized Pacific Sunwear exits bankruptcy on firmer ground
- Teen apparel retailer Pacific Sunwear of California has won court approval to exit Chapter 11 bankruptcy, Bloomberg reports.
- Under the plan approved Tuesday 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.
PacSun is faring far better from its Chapter 11 process than other recent retail bankruptcies like Sports Authority, which closed all stores and liquidated last month, and Aeropostale, which was saved by an 11th hour bid from a consortium led by mall owners but will keep just half its stores open.
PacSun entered its April bankruptcy filing with about 590 stores: The company has since closed about 10 to 20 locations and negotiated more favorable mall rents for its remaining stores.
The question now is whether pressure from e-commerce, stiff competition and an overall decline in consumers’ interest in spending on apparel will continue to buffet PacSun's long-term prospects.
Pacific Sunwear struggled for years ahead of its Chapter 11 filing, posting losses since 2008 due in part to a failure to compete with inexpensive, on-trend fast-fashion rivals like Forever 21 and H&M, which have the sophisticated logistics to keep up with trends as they emerge. Teen retailers like PacSun have also found that customers, especially younger millennials, are holding on to their discretionary funds, choosing to spend on experiences rather than new clothes.
Golden Gate Capital nevertheless remains confident in PacSun's comeback prospects: In an April statement, managing director Josh Olshansky called the retailer's business "fundamentally strong and sound" and said it is performing better than many of its competitors. "PacSun has successfully transitioned beyond its historical base of action sports brands to what we believe is the most relevant and coveted mix of brands celebrating the California lifestyle," Olshansky said at that time.
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