Blog: The trials of teen retail
Leonie Barrie | 16 March 2009
Trendy US fashion firm American Apparel has been given a new lease of life after selling an 18% stake in its business to British private equity firm Lion Capital for $80m.The transaction, which closed on Friday, will be used to pay off debt and provides much-needed relief for the retailer and manufacturer which was nearing the end of a three-month extension on two of its credit facilities.
The Los Angeles based maker of branded fashion basics has been seeking new financing deals since December, and media reports said it was close to defaulting on a $16m debt. The company will also use some of the money to grow both domestically and internationally.
American Apparel has invested heavily in recent years to develop into a global apparel brand. But this expansion has incurred huge levels of debt, along with worries that demand is starting to slow after February same-store sales fell 9%.
Aeropostale, another firm targeting the teen apparel market, is managing to shrug off the recession after posting a 5% rise in fourth quarter profit on soaring sales, and revealing details of a new kids’ store concept opening this summer. As well as expanding its Aeropostale concept during the year with the addition of 40 new stores, the company is also launching a new kids’ concept called 'P.S. from Aeropostale' in June.
In contrast, rival retailer Tween Brands is to shutter up to 40 stores this year as it continues to overhaul the business, converting all of its outlets to the Justice brand. About 340 of its old Limited Too stores have already been converted to the Justice name, but where outlets are geographically close together, closures are expected.
Teen and young women's wear retailer Charlotte Russe, meanwhile, is putting itself up for sale following a review of its strategic alternatives. The retailer has instructed its financial advisor Cowen and Company to initiate a sale process – and says it has already received preliminary expressions of interest from both financial and strategic buyers.
Over in the UK, retail sales slid 1.8% in February as snowy weather in the first week of the month and the end of January's clearances kept shoppers away. The figures seem to confirm January's surprise year-on-year sales rise was just a discount-driven blip and, worryingly for apparel retailers, sales of women's and men's clothing saw their worst month since April 2008.
The results coincide with a 26% fall in full-year profit at department store operator John Lewis Partnership, which is widely seen as a bellwether of the UK retail scene. It also expects a "very tough" 2009 after sales across the company fell 1.6% in the first five weeks of the fiscal year.
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