Aeropostale’s Turnaround Troubles

Things are not looking great for Aeropostale or its hopes of a turnaround effort out of Chapter 11, as it continues to spar with its primary lender  Sycamore Partners over what should be company’s immediate course of action.

Sycamore’s goal is to see Aeropostale’s inventory auctions off by July 1 so that they can hit the back to school season, which is something of a mini Christmas for teen retailers like Aeropostale. Which, as it turns out, is pretty much the central issue here. Aeropostale isn’t quite ready to lay down just yet, and thinks it can use the lucrative back-to-school season as the slingshot it needs to turn the firm around. Or at least buy some more time to keep mounting an effort.

The tensions between Aeropostale and Sycamore have been building for some time. The retailer contends that one of the driving factors in its bankruptcy was Sycamore-owned manufacturer MGF Sourcing. An agreement on that was reached in May. Aeropostale had previously claimed that MGF’s draconian payment terms pushed them into a  bankruptcy filing, a claim that the supplier said was “frivolous.”

It seemed that perhaps things could proceed in a more friendly fashion, though it now seems that such a peace is unlikely. Sycamore maintains that Aeropostale has no chance of turning anything around, calling it “illusory” and noting that it “has no realistic chance of success” in court documents.

And while there is some agreement that the retailer’s grievances with MGF have merit, there is also concern that Aeropostale does have a fundamental problem: it doesn’t know who exactly its target audience is, and is not connecting with any base in particular.

“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,” Shelley E. Kohan, VP of retail consulting at store analytics firm RetailNext noted. “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.”