What goes up must come down, and considering the rapid pace of innovation in retail today, it shouldn’t be too much of a surprise that plenty of once-thriving brands are finding themselves speeding toward hard landings instead. The first quarter of 2016 has already seen a fair number of brands bowing out, but whether it’s bankruptcies, widespread store closures, across-the-board staff layoffs or just the first hints at retailers sliding into periods of market distress, May keeps delivering more and more retailers into the clutches of an uncertain financial future.
Bankruptcies
Teen fashion retailers haven’t fared well in a landscape filled with more flexible fast-fashion upstarts, and the latest mall-chic brand to kick the bucket was 2000s staple Aéropostale. The news came down last week that the teen/tween apparel brand would be closing 154 of its remaining 800 store fronts as soon as possible following its Chapter 11 filing, but its nightmare won’t be over until it settles a developing spat with one of its suppliers over alleged fixed prices and overcharges totaling in the $25 million range.
Wherever Aéropostale and its remaining retail footprint end up, it’ll be a far cry from the $3 billion valuation it held as recently as 2010.
Teen fashion wasn’t the only segment to see one of its bright spots flame out early. BlackJet, a briefly successful version of several “Uber for planes” startups, grounded itself permanently on Friday (May 6) as a result of dried-up revenue streams. BlackJet had relied on membership fees to fuel its fleet of on-demand charter aircraft, but CEO Dean Rotchin had to call a spade a spade when even funding from venture capital firms and celebrities alike (see: Ashton Kutcher, Will Smith and Jay Z) failed to keep the business aloft.
“We probably did more with less than anyone, but it’s a critical mass business,” Rotchin told Fortune. “There’s a reason why ‘critical’ is part of ‘critical mass.'”
It wasn’t just flashy startups and outdated apparel that saw their futures spoil last week. For every fast-fashion disruptor, there’s another working to undermine how legacy grocery retailers have hawked their wares for decades. On Monday (May 2), New York grocery chain Fairway Market — famous for its towering produce displays on Manhattan sidewalks — folded to the pressure of not just the Whole Foods and Trader Joe’s of the world but also to business siphoned off by dollar stores and mass convenience shops.
“Nobody slices a fish or boils a bagel like us,” Fairway CEO Jack Murphy said in a statement. “Nobody.”
If Fairway can’t restructure over the next few months, nobody will.
Store Closings and Layoffs
Not every retailer had the rug pulled out from under them over the last week. If they could help it, some mitigated their losses to dozens or hundreds of stores closed and only thousands of workers laid off.
One such company was bebe, the women’s fashion retailer that announced an 8.1 percent decrease in annual same-store sales and a $30 million loss in the quarter ending April 2. As a result, the chain has shuttered 12 retail store fronts and two outlet locations and cut nearly 100 corporate positions from its payroll. While CEO Manny Mashouf contended that all defunct stores were “non-productive,” time will tell whether fewer locations will help bebe recoup that massive quarterly loss.
On the other hand, Scoop NYC — the fashion brand that had a big hand in the rise of boutique-style shopping inside and outside the Big Apple — isn’t toughing it out to see whether happier times are around the corner. Scoop’s Soho flagship store is officially kaput, and the company is fast at work liquidating the rest of its locations across the rest of the boroughs. Even those last vestiges will only be around until “everything is sold out.”
Not every brand struggled with life-or-death decisions on who to fire, though. Some, like Groupon, saw fit to axe a cool 30 employees to keep its belt tightened.
Obviously, the spate of store closings has had a marked effect on employment in the retail field, which a recent study from Challenger, Gray & Christmas pegged as the second least stable market in the U.S. in April. With the exception of the energy sector, retail’s 36,977 job cuts so far in 2016 are setting the pace for what might turn out to be one of the most volatile retail job markets in recent memory.
In Hot Water
Before the proverbial fire of store closings (or the firestorms of full-on bankruptcies), there’s usually a bit of smoke before it all. As more businesses fail or begin the painful process of restructuring, though, that just means there are more red flags popping up across the market.
Of those that found their feet pressed to the financial fires last week, Macy’s and Gap might be the biggest names among them. The former, which reported a 7.4 percent drop in revenue through Q1, saw its stock drop to a year-long low after the loss of 15 percent of its value. Macy’s off-price Backstage stores show some promise in helping dig the retailer out of the hole it finds itself in, but its full-price locations might see the chopping block if that trend doesn’t turn itself around.
While Macy’s had a single brand’s worth of numbers to fret over, Gap has three. Gap’s main brand and its two subsidiaries, Banana Republic and Old Navy, saw same-store sales declines of 3 percent, 11 percent and 6 percent, respectively. Net sales fell by around $200 million compared to the same period last year, which can’t bode well for Gap’s uphill battle against trendier and more flexible fast-fashion brands.
Speaking of flexibility, Hot Topic attempted to display some of its own over the past week when it subtly rebranded itself from a fashion and lifestyle retailer for the teen, tween and young, rebellious adult shopper to one meant for “18- to 24-year-old men and women.” It’s not cause for panic at Hot Topic yet, but the very fact that it’s willing to reposition itself could hint at the fact that it’s being beat by other competitors who’ve already done so faster and better.
Finally, two retailers that see themselves in some indeterminate position between a frying pan and a fire are Staples and Office Depot. After nearly a year of legal wrangling, the two office supply chains got a straight answer on their impending merger, and that answer was “no.” Both companies suffered not-insubstantial hits to their market prices, but it will be Staples that’s left on the hook for a $250 million merger cancellation fee payable to its would-be brand mate. Amid reports of further store closures, both brands will have to find new ways forward if they expect to see a 2017 in the black.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More