The tumultuous financial journey of Aéropostale has almost hit its breaking point, with the retailer set to file for bankruptcy as soon as this month, according to a report from Bloomberg.
With the teen retailer still exploring strategic alternatives after a rough 2015, it appears Aéropostale will seek reorganization under a Chapter 11 filing. The company is trying to work out a loan to finance its operations during the bankruptcy process. It’s also possible that the retailer will either find a buyer or strike a deal to avert the filing, according to the report.
After three straight years of net losses, Aéropostale joined fellow specialty retailer Pacific Sunwear in filing for bankruptcy, signaling that these merchants are failing to catch up with modern shopping habits of younger consumers. Fast fashion has certainly played a role in the popularity shift, as H&M and Forever 21 have stepped in to fill the void previously held by brands such as Wet Seal and Cache.
While the Aéropostale and PacSun bankruptcies spell trouble, other teen retailers such as American Eagle Outfitters and Abercrombie & Fitch have made extra efforts to evolve. In 2014, American Eagle announced plans to close 150 stores over the next three years as a way to further emphasize its digital sales channels, and the retailer started to decrease inventory levels in stores while improving product quality. For its part, A&F assembled a new brand leadership team in 2015 and removed some of the controversial aspects of its brand within the store, such as shirtless models, loud music and dim lighting.
The fortunes of both American Eagle and A&F have varied since both companies undertook these changes, but overall the shifts have positioned them well ahead of their contemporaries when it comes to long-term health. American Eagle reported a comparable sales increase of 7% in 2015, compared to a 5% decrease the year prior, with an earnings per share (EPS) increase of 73%. While sales at A&F decreased 3% in 2015, this was an improvement on the 2014 decline of 8%. In fact, A&F’s sales results actually improved every quarter of 2015, with the Hollister brand gaining as much as 4% sales in Q4.
With these two major brands — largely known for their teen audiences — keeping afloat during a rough time for many traditional mall-based retailers, there is a light at the end of the tunnel for brands such as Aéropostale. However, it’s incumbent on these retailers to bolster their e-Commerce offerings, eliminate underperforming stores and change outdated brand philosophies that may be holding them back.