UPDATE: Teen apparel retailer Pacific Sunwear of California Inc. Thursday confirmed it will file for Chapter 11 bankruptcy protection as it undergoes restructuring.
Private equity firm Golden Gate Capital has given Pacific Sunwear a $60 million senior secured term loan, which could help the private equity firm acquire it through the bankruptcy process, a development that has been rumored for a while. Its debt also includes of a $100 million revolving loan with Wells Fargo Bank; both loans come due in December, according to the Wall Street Journal.
UPDATE: The company says it has reached an agreement with affiliates of Golden Gate Capital, the holder of its secured term loan provider under its financing facilities. A reorganizaiton plan was approved by its board of directors.
UPDATE: Pacific Sunwear president-CEO Gary H. Schoenfeld said in a statement that the retailer will continue to operate its business without interruption to customers, vendors, partners or employees, with no impact on featured brands or its inventory. And the company will re-negotiate store leases as part of its plan, which aims to address two structural issues: high occupancy costs and maturing debt. Pacific Sunwear runs 613 stores nationwide, many in malls.
Teen retailer Pacific Sunwear has been struggling for a while now, posting losses since 2008 and finding it difficult to meet competition as inexpensive, on-trend fast-fashion retail has grown.
It's in a particularly tough category, as teens gravitate to these fast-fashion companies like Forever 21 and H&M, both of which have the sophisticated logistics to keep up with trends as they emerge. Teen retailers are also finding that customers, especially younger millennials, are holding on to their discretionary spending, choosing to spend it on experiences rather than new clothes.
This passion for experiences over things is leading some retailers to revamp their stores so that they’re experiences in themselves. Target’s holiday “Wonderland” pop-up in New York this year, for example, was also an over-the-top test space for various ways to pump up and improve the customer experience. Teen retailers have also had to take a long hard look at their merchandising decisions, with some including American Eagle and Abercrombie investing in quality and logo-less designs. Abercrombie said last month that these moves have helped it cut down on excessive discounting, a problem many retailers ran into this past holiday season.
These troubles have haunted many storied retail institutions for a while, as the Wall Street Journal points out, including rival surf brand Quicksilver, Wet Seal, dEliA*s Inc., Deb Shops, and Cache Inc., and most recently American Apparel, which all have gone through bankruptcy in recent months. Teen retailer Aeropostale also announced in March that it is looking at strategic alternatives for the company, including restructuring.
UPDATE: But Schoenfeld and Golden Gate Capital managing director Josh Olshansky both expressed confidence in the company and what they said in a statement are "fundamentally strong and sound business that 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 in a statement. "We believe in the future of the Company, as reflected by our significant injection of new capital into the business."