UPDATE: Aeropostale, main lender reach settlement

Dive Brief:

UPDATE: In a statement emailed to Retail Dive, Sycamore Partners said that June 10 it had reached a settlement with Aeropostale that requires the teen apparel retailer to conclude a sale or reorganization no later than August 26, 2016 rather than by September 26, 2016. The settlement "requires 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," according to the statement.
Last week Sycamore had said it would like to see an auction take place by July 1 in time for the lucrative back-to-school season, according to court documents detailed by the Journal. Back-to-school is nearly as important as holiday sales for many retailers and especially important for a teen retailer like Aero.
But Aeropostale had insisted that the back-to-school season could be a lifeline that could help it with its turnaround efforts and buy it some more time, according to the Journal’s account.

Dive Insight:

Aeropostale Inc. and Sycamore seemed to end their simmering dispute last month when they came to an agreement over Sycamore-owned manufacturer MGF Sourcing, which Aeropostale has maintained has been a major reason for its current troubles.

That agreement entailed MGF Sourcing shipping already-ordered inventory under the settlement, which Aeropostale agreed to pay for within 14 days of delivery. MGF will also drop its objection to a new $160 loan from Crystal Financial LLC, and their 10-year agreement is severed, according to the Journal.

Aeropostale had previously said that MGF’s Draconian payment terms were a factor that led to its bankruptcy filing, a claim that the supplier said was "frivolous."

But the friction remains, with Sycamore pressuring Aero to hasten its auction and insisting that its holdout for revival is “illusory” and “has no realistic chance of success,” according to court documents detailed by the Wall Street Journal.

While there may be some truth to Aeropostale’s contention that MGF’s terms led it to where it is today—in bankruptcy court and off the New York Stock Exchange—the reality is that the retailer’s troubles were becoming evident by 2013, when teen apparel sales nosedived. Like many other merchants, Aeropostale has struggled to figure out how to appeal to today's teenagers, who are more likely to spend their limited cash on going out to eat or other experiences.

And, Shelley E. Kohan, VP of retail consulting at store analytics firm RetailNext told Retail Dive, the retailer struggles with margins that are even thinner than most, considering its high quality and low prices. Plus, Kohan says, Aeropostale hasn’t faced the fact that its core customers are tweens—or more accurately, the parents who buy their clothes—and not the older teenagers and college students it purports to serve.

“I think it’s going to be a struggle for them unless they quickly define a better specific target market and rethink their margin problem,” Kohan told Retail Dive. “When you have razor-thin margins, you cannot expense your way into a profit, and that’s always going to be a challenge for them. And they’re going to have to figure that out.”