Bankrupt Aeropostale poised to auction assets next month

Dive Brief:

Bankrupt teen apparel retailer Aeropostale is unlikely to reorganize under Chapter 11 protection and is preparing to sell its assets, according to the Wall Street Journal and Bloomberg reports citing bankruptcy court filings.
“Reorganization on a standalone basis is not feasible,” Aeropostale states in court papers filed July 15, adding it will seek a “stalking horse” to make the lead bid at an auction scheduled for next month. The proceeds of any sale will go to Aeropostale's creditors.
Aeropostale also said it has 11,000 pages of documents and depositions under review from Sycamore Partners (the private equity firm that acquired 8% of the company in 2013) and that it may pursue claims against Sycamore and its affiliates. For its part, Sycamore is interested in probing the process Aeropostale has used to seek buyers as well as retailer’s public financial disclosures, sources told the Wall Street Journal.

Dive Insight:

When Aeropostale sold a major stake to Sycamore Partners, the deal included an agreement to source with Sycamore-owned MGF Sourcing, a clothing manufacturer and supply chain management company. The retailer now says that agreement was its undoing. Aeropostale has alleged that MGF's moves to impose stricter payment terms forced the retailer to file Chapter 11, charges that MGF called "frivolous."

Aeropostale and Sycamore seemed to end their dispute last month when they came to an agreement requiring Aeropostale "to pursue a value-maximizing strategy for the benefit of the company's creditors by concluding a reorganization or sale of the company's assets during the company's back to school sales season."

Regardless of Aeropostale's finger pointing, experts have told Retail Dive that the retailer sealed its own fate by hewing too closely to trends set by American Eagle Outfitters and Abercrombie & Fitch, the so-called "other two As" synonymous with teen apparel, and failed to develop a distinct vision. That made it difficult for Aeropostale to pivot, because there’s not much of a fulcrum. Plus, the merchant has not been able to get out from under heavy discounting, despite offering higher-quality clothing than its competitors.

“Aeropostale has always been the weak link in the chain," Columbia University retail studies expert Mark Cohen recently told Retail Dive. "They never had a signature collection in terms of denim like Eagle, and they never had the presence within the consumer space like Abercrombie. It’s all about low price, and they can’t protect themselves from themselves. The lights start to dim and they go out, and they don’t come back on. My guess is there’s no 'there' there, and they’ll have terrible trouble coming out of Chapter 11 intact."

Bloomberg reports that Aeropostale will auction its assets on Aug. 22 if there’s any indication of competitive interest. The retailer listed $390 million in debt and about $354 million in assets in its Chapter 11 petition.