If there were no stock market, what would be your general impression of the economy? Ask yourself the same question after reading this article from Wolf Richter at wolfstreet.com:
There’s no respite in sight.
Another retailer is heading for bankruptcy. This time Aeropostale, with 800 teen-clothing stores, after three years in a row of losses. It’s “preparing to reorganize under a Chapter 11 bankruptcy, and could file as soon as this month, according to people familiar with the matter,” Bloomberg reported today.
Upon Bloomberg’s propitious report, Aeropostale shares plunged 28% to 15 cents. It has been a penny stock since last September. The New York Stock Exchange, which had threatened the company with delisting, removed the stock before 2 p.m. today, and trading of the shares has been suspended.
Bloomberg:
Aeropostale is trying to work out a loan to finance its operations during the bankruptcy process, according to the people. A deal to avert a filing or find a buyer also could still emerge, they said.
Which is what just about all collapsing retailers are valiantly trying to do. And often to no avail.
In March, Aeropostale had already announced that it would “evaluate strategic alternatives.” It hired Stifel Financial Corp. to work on a sale or restructuring. According to Bloomberg, it’s also working with law firm Weil Gotshal & Manges LLP and FTI Consulting, “people familiar with the matter said last week.”
As in so many cases, there is a private equity angle. PE firm Sycamore Partners owns a large state in Aeropostale and is its main lender. But they have been embroiled in a feud. Sycamore also owns Aeropostale’s key clothing supplier, MGF.
In 2013, when Sycamore acquired its stake in Aeropostale and lent if $150 million, it obtained two seats on the board and set up the supply deal with MGF. Bloomberg:
At the time, Sycamore was seen as possible savior for the troubled chain. Some investors expected the investment firm to eventually acquire the rest of Aeropostale, helping redeem a stock that has been declining since 2010.
But that didn’t work out. These hopeful investors lost their shirts. Sycamore’s two directors left Aeropostale’s board. In March, Aeropostale said that MGF has stopped delivering merchandise in violation of the terms of its agreement, leaving the retailer short on merchandise. MGF, as Bloomberg put it, said “it was merely seeking protection from Aeropostale.”
There are numerous other 1990s and 2000s brands that didn’t quite make the transition in the relentlessly tough US retail environment of squeezed consumers, fickle and picky teens, smart women, shoppo-phobic men, inscrutable millennials, and a brutal shift to online sales.
To continue reading: Retailer Bankruptcies Are Hailing Down on the US Economy
