Aeropostale, once a popular mall destination for teens, has filed for Chapter 11 bankruptcy protection, becoming the latest victim in the fast-changing retail landscape.
Aeropostale joins the ranks of teen retailers looking to reorganize under bankruptcy protection including Wet Seal Inc., Pacific Sunwear of California and American Apparel. And like many of these ailing merchants, Aeropostale had been struggling for several years.
The chain has racked up three years of annual losses and five straight years of annual sales declines for a key measure. Annual sales shrunk to $1.5 billion last year, down nearly 40 percent from $2.4 billion in 2010.
Its shares were delisted by the New York Stock Exchange last month, after they were trading for 15 cents. Aeropostale's stock hit an all-time high of $32.24 in 2010.
Since the Great Recession, many teen chains have suffered because of fierce competition from the likes of online players and fast-fashion retailers such as Forever 21. But they're also wrestling with seismic changes in shopping behavior. Teens have always been fickle shoppers, but these days they're shopping differently, mirroring broader trends in the retail industry. They're no longer roaming around at the mall but researching deals and fashions on the Web before they go. And they're not looking to be carbon copies of their peers; instead, they're embracing individualistic styles.
Aeropostale was a bright spot during the downturn, as shoppers saw it as the cheapest option compared to the two other teen industry stalwarts: American Eagle Outfitters and Abercrombie & Fitch. But as the economy improved, teens went back to some of their favorite brands, though they still wanted fat discounts. Both American Eagle and Abercrombie have seen their sales improve recently as they have worked hard to reinvent their businesses. American Eagle, for example, has been able to scale back its discounting as it overhauled its fashions, including adding more stretch to its jeans. But Aeropostale has been slow to adapt to these changing times.
"It has become increasingly clear that Aeropostale's business model is broken and cannot be fixed without major restructuring," writes Neil Saunders, CEO of retail research firm Conlumino in a report published Wednesday.
Here are four challenges that Aeropostale has struggled with:
- TEENS DON'T WANT TO LOOK LIKE EACH OTHER: It used to be that teens wanted to dress exactly like their peers and were fixated on sporting anything with a logo from their favorite brands. Not anymore. Teens, inspired by Instagram and the like, are looking to personalize their looks, and prefer to grab items from different stores. That has been a big problem for Aeropostale, whose sales had been driven by logoed merchandise. Aeropostale started to shed its logoed clothing and began focusing on trendy items about three years ago. It teamed up with names like stylish American video blogger Bethany Mota. But its efforts were too little, too late. The new looks never failed to gain traction with shoppers.
- AEROPOSTALE COULDN'T WEAN SHOPPERS OFF PROMOTIONS: Teens like deals and they like to research online before shopping at the stores. But they're also willing to pay full-price for something they covet. However, Aeropostale was forced to constantly discount the entire store by as much as 70 percent off because they couldn't get shoppers to buy the clothes. "They were too caught up in the promotions," said Ken Perkins, president of Retail Metrics, a retail research firm.
- THE CHANGING MALL: Aeropostale and other retailers benefited from being at the epicenter of where teens shop: the mall. But increasingly, kids are shopping on their smartphones and going to the mall for specific items, not just to roam around. And a rash of bankruptcies of mall-based retailers have left some holes and hurt traffic at the shopping centers, says David Tawil at Maglan Capital, a hedge fund that focuses on distressed securities. That's hurt Aeropostale, which is now closing 113 of its 739 U.S. stores, or 20 percent of its store base. As of early January 2014, it had 1,100 stores. Analysts also say Aeropostale hasn't done enough to make their stores more exciting to shop. And some believe Aeropostale will need to close even more stores to restore profitability.
- INTENSE COMPETITION: Teens are buying their clothing and accessories at lots of different places, from Forever 21 to off-priced stores like TJ Maxx and online. And the competition is only getting fiercer. Amazon.com is quietly expanding its private-label fashion business, while teen stores face new rivals from overseas. United Kingdom-based Primark, which sells trendy cheap items like $7 jeans, made its first foray last year in the U.S.