Hong Kong clothing supplier Li & Fung has reportedly become the main provider for US youth fashion chain Aeropostale following a dispute with key vendor MGF Sourcing.
MGF is an affiliate of private equity company Sycamore Partners, which three years ago invested US$150 million into Aeropostale to help keep it afloat.
Aeropostale had even considered selling itself after delivering its 13th consecutive quarterly loss, as Inside Retail Hong Kong reported last month. Specialising in cheap t-shirts and casual wear for teenagers and upward, the company reported a 16 per cent drop in quarterly sales to January 31. It tried heavy discounting to attract more custom, and closed an unspecified number of retail outlets.
Li & Fung already works with Aeropostale, but will now displace MGF Sourcing as main supplier, according to industry insiders.
Aeropostale last month claimed MGF was holding up the delivery of merchandise and violating the terms of its agreement. In a statement this week, MGF said it was not in violation of its sourcing agreement with Aeropostale, and had taken action to protect itself by reducing payment terms in accordance with the agreement.
Aeropostale’s agreement with MGF obliged it to buy between US$240 million and $280 million in goods a year. Failure to meet the threshold would require Aeropostale to make “certain agreed-upon principal payments and shortfall payments”, according to a regulatory filing.
Following the first three years of the minimum purchase requirement, Aeropostale can terminate the agreement – but has to give nine months’ notice. A termination fee would be defined by the length of time remaining on the contract.
Aeropostale renewed a 10-year sourcing agreement with Li & Fung more than a year ago.