News that Aeropostale enters Chapter 11 comes as no particular surprise.
The past few years have seen the once-popular teen retailer lose sales and share as it has fallen out of favour with its customer base. Despite some efforts to enact a turnaround, during the last few quarters the pace of decline has quickened and the consequent losses have stacked up. It has become increasingly clear that Aeropostale’s business model is broken and cannot be fixed without major restructuring.
In short, Chapter 11 buys Aeropostale time and space to undertake this rethink. In itself does not provide a long term solution.
The recent dispute with its main lender Sycamore Partners and MGF Sourcing, the clothing supplier it owns, have acted as a catalyst in closing the book on this chapter of Aeropostale’s history. They are not, however, the main source of the company’s woes. Indeed, given that Aeropostale has been losing market share since 2011 the problems have been developing for many years.
While some of the retailer’s early declines were down to challenging conditions within the teen fashion segment over recent years this ‘excuse’ has worn increasingly thin, not least because other players in the market, including American Eagle Outfitters, have successfully rebuilt their relevance and market share.
Aeropostale did not follow suit and the majority of the blame for poor performance lies squarely with the company’s failure to realign itself to the changing fashion demands of younger shoppers. Against this backdrop Aeropostale has a brand and range that is ill-defined, somewhat dull, and rather out of tune with modern tastes. This misalignment, combined with the boredom that arises from a lack of change, has resulted in many shoppers defecting from the brand and switching to fast-fashion rivals like H&M.
Out of all the teen retailers, Aeropostale has suffered one of the sharpest declines in shopper numbers with 2.1 million fewer teen consumers regularly visiting last year compared to 2011.
In response, Aeropostale has attempted to stimulate demand with heavy discounts and promotions. However, as the problem lies with product design and assortment, rather than with pricing, the impact on sales has been negligible while the effect on margins has been horrific.
While Aeropostale has made some previous efforts on the product front, including a capsule range by video blogger Bethany Mota, we have not seen any real sign of development over the past year or so. As such it seems Aeropostale has no underlying vision in terms of where it wants to take its brand. In a crowded and competitive market this has proved to be the death knell.
The lack of traction on the sales front has weakened the turnover of inventory which has left stores crowded with merchandise and all too often resembling a yard sale. This stands in marked contrast to the improved shopping experiences at rivals like Abercrombie and American Eagles. It has also made stores less productive, which has been a particular problem in many mall based locations already suffering from weaker footfall.
Against this backdrop Aeropostale has been shuttering stores, but much more radical closures are required in order to offload unprofitable locations. This will be one of the key elements of the restructuring under Chapter 11, with the company having already announced the closure of 113 US locations and all of its Canadian stores.
Looking ahead, Aeropostale will likely emerge from Chapter 11 as a leaner entity with a smaller, but largely profitable, store base. However, all this serves to do is provide the retailer with a stable platform from which to operate. It does not solve the issue of relevance to the market and it will still, at least in brand terms, leave it as the weakest of the ‘three As’ of teen retailing.
Rethinking the brand proposition is key to improving prospects.
- Neil Saunders is CEO of retail analyst Conlumino.