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Aéropostale Bankruptcy: Just The Latest Teen Trauma

Aéropostale Bankruptcy: Just The Latest Teen Trauma

In the latest example of teen retailers failing to hold their own in the industry, Aéropostale filed for Chapter 11 bankruptcy, following the recent footsteps of Pacific Sunwear and a horde of other youth-targeted brands that have either called it quits or reorganized within the last 18 months.

As part of the bankruptcy reorganization, the retailer will close 113 stores in the U.S. and all 41 of its Canadian locations. Store closing sales are scheduled to begin in the U.S. during the weekend of May 7-8, 2016, and in Canada during the week of May 9, 2016.

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Aéropostale secured a commitment for $160 million in debtor-in-possession financing provided by Crystal Financial LLC, which, combined with operating cash flow, will allow the retailer to meet its go-forward financial commitments.

The retailer intends to emerge from the Chapter 11 process within the next six months as a stand-alone enterprise with a smaller store base, and also seeks to resolve its ongoing disputes with Sycamore Partners, the venture capital firm that initially loaned the retailer $150 million in 2014.

The Aéropostale bankruptcy filing shows just how difficult it has been for teen retailers trying to capture today's young demographic, especially as teen mall traffic declined 30% from 2003 to 2013. Retailers such as American Eagle and Abercrombie & Fitch, which had once relied on the mall as a major sales point, have had to shift gears in order to engineer company turnarounds. Pressures from e-Commerce retailers focused on fast fashion are forcing these brands to exit their comfort zone, focus more on trends changing at rapid rates and generate a quicker turnaround on inventory levels.

Perhaps Aéropostale’s decision to get leaner will be in line with its planned merchandise repositioning, so that the retailer can follow the suit of American Eagle and A&F instead of potentially floating into obsolescence.

Five Below’s Pricing Model Captures Young Audiences

While traditional mall-based teen retailers have had to contend with the poor store sales that lead to downsizing, one teen merchant is actually bucking this trend: Five Below. The budget retailer, which caters to teens and pre-teens, is actually set to open as many as 85 locations in 2016, only a year after opening 71 stores in 2015. Its physical stores are primarily located on the East Coast and in Texas, but the brand hopes to establish a California store by 2017.

Unlike its pricey teen counterparts, the retailer’s “$5 and below” pricing model appears to be a major hit with its intended audiences due to the wide array of items sold, which include sandals, earrings, handbags, sports balls, candy and assorted games. Whereas many struggling teen retailers such as Aéropostale have diverse merchandise offerings, there is often an inability on their part to price items cheaper than those of Forever 21 and Zara, thus making the variety less impactful on the consumer when they can just visit another retailer either in person or online.

 

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