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Apparel Retail and The Losing Side of Disruption

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The Apparel Retail sector has in recent years faced waves of disruption that have challenged the business models of legacy retailers. The pace and severity of this change has forced many companies to restructure, and further restructuring is likely before this industry sector adjusts to new business models and heightened competitive pressures.

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Apparel Retail and The Losing Side of Disruption

  1. 1. 1 The Losing Side of Disruption Apparel Retailers Fighting, and Losing, a Multi- FrontWar September 26, 2016 Abraxas Group LLC www.abraxasgp.com
  2. 2. “The only difference between a rut and a grave is their dimensions.” ‒ Ellen Glasgow 2Abraxas Group LLC www.abraxasgp.com
  3. 3. • David Johnson is a career change agent who has served as interim manager or financial advisor on over $5 Billion of distressed middle market transactions. • David has several publications to his credit and is a regular speaker on the topics of change management, performance improvement, turnaround and restructuring. He received his MBA from the University of Chicago and completed his undergraduate studies at Fairleigh Dickinson University. David Johnson 3 david@abraxasgp.com 312-505-7238 @TurnaroundDavid Abraxas Group LLC www.abraxasgp.com Role Highlights • Interim CFO, $160MM Construction Company • Chief Restructuring Officer, Recycling Company • Interim COO, Nonprofit Social Services Company • Interim VP (Finance), $150MM Marketing Company • Created >$70MM in Enterprise Value in successful turnaround • Initiatives led to 16% increase in operating income • Managed successful turnaround of 120-year old organization • Negotiated $5MM discount in settling aged payables
  4. 4. Mall Based Retail • For many, mall based stores have become an impediment to success Fast Fashion Digital Natives • Fast Fashion is forcing a reexamination of apparel retailer’s core competencies • Digital natives are winning the race to a true omnichannel experience MultipleWaves of Disruption 4Abraxas Group LLC www.abraxasgp.com
  5. 5. • In 2015, ecommerce accounted for nearly 20% of all U.S. apparel sales • From 2013 to 2015:  Ecommerce added 3.5 percentage points of share  YoY growth in ecommerce sales exceeded 14%  YoY growth store based sales grew at less than 2% Ecommerce is Swallowing Apparel Retail 5 Apparel Retail Sales ($B) Year Stores Ecommerce 2013 246.4 48.5 2014 250.8 55.5 2015 255.1 63.5 Abraxas Group LLC www.abraxasgp.com
  6. 6. The combination of strategic pressure and declining financial performance has forced several apparel retailers into bankruptcy. Recent Bankruptcies 6 Company Pre-Bankruptcy Stores Year Aeropostale 800 2016 Pacific Sunwear 600 2016 American Apparel 230 2015 QuikSilver 700 2015 Wet Seal 500 2015 Abraxas Group LLC www.abraxasgp.com
  7. 7. WhenVictory Resembles Defeat • Aeropostale, a 90s darling of the apparel retail sector, failed to make timely adjustments in the face of a shifting market. • Facing a liquidity crisis, the company filed for chapter 11 bankruptcy in 2016. • In September a plan of reorganization featuring a sale of the company to its landlords and a group of liquidators for $243 million was approved. 7Abraxas Group LLC www.abraxasgp.com
  8. 8. Multiple Paths to Success • Legacy apparel retailers should look to invest in robust, and expedited strategic reviews. • Understanding what capabilities / characteristics to invest in in order to establish and bolster competitive advantage will require an objective assessment of the current state. 8 There remain multiple ways to win in apparel retail, but failing to adjust to changing consumer tastes and competitive pressures will produce only failure Abraxas Group LLC www.abraxasgp.com