Lower mall foot traffic, online hurt bricks-and-mortar
American Apparel bit the dust. So did Nasty Gal. BCBG Max Azria filed for bankruptcy as did teen retailer Wet Seal.
The fashion industry long has been a fickle beast, with trends rising and dying sometimes in the space of weeks. But changing consumer habits — including the emergence of e-commerce and the decline of traffic at many malls — is further shortening the life cycle for many fashion brands, analysts said.
“Thirty years ago, you didn’t have to adapt as fast,” said Ron Friedman, a retail expert at accounting and advisory business Marcum. “The retail environment is completely going through a revolution. Your normal brick-and-mortars are restructuring. Brands are going out of style.”
Faced with seismic changes, bankruptcies in the retail sector have been on the rise. In 2012, three retail companies with liabilities of $50 million or more filed for bankruptcy, according to a study by consulting firm AlixPartners.
Eight retail bankruptcies occurred in 2014, a number that was reached just six months into 2015, the last year analyzed in the study — although that still pales in comparison to 20 bankruptcies in 2008 during the height of the recession.
To be sure, once-hot brands faded away with nary a whimper before the digital age — Robert Hall in the 1970s, Rogers Peet in the 1980s and Merry-Go-Round in the 1990s.
But the web has been a double-edged sword for fashion brands, both a way to reach a worldwide audience for their wares, while also serving as a giant emporium where shoppers can click to a rival site in seconds.
“There’s a perfect storm now,” said Corali Lopez-Castro, a partner at KozyakTropin and Throckmorton who has handled retail bankruptcies. “I don’t know if many retailers can adjust.”
Some retailers have stumbled, including a number of southern California brands. It’s a region that already has been hard-hit by a decline in garment manufacturing — and as home for many casual brands, is especially susceptible to the rise of fast fashion.
BCBG concedes its failure to harness the web contributed to its downfall. The Los Angeles company said e-commerce sales made up only “a small proportion” of its overall business, according to bankruptcy documents.
The rise of fast-fashion rivals also has shortened the attention span of consumers. Before H&M and Zara came on the scene, retailers that had a lackluster season could course-correct a few months down the line — knowing shoppers probably would come back to browse while strolling their local mall.
But now shoppers can hop online or go to fast-fashion stores that introduce fresh fashions on a weekly basis.
“If you are a fashion apparel retailer, you have to have a steady flow of newness,” said Craig Johnson, president of Customer Growth Partners. “You can’t just regurgitate what was hot last year.”
At the same time, consumers are spending a diminishing chunk of their income on clothing, opting to shell out for electronics or experiences instead. Less than 4 percent of every dollar is now spent on buying apparel, Johnson said, compared with 8 percent in the mid-1990s and 20 percent a century ago.
Since 2005, 55 percent of retailers that have filed for bankruptcy have ultimately liquidated their business, compared with 5 percent of bankruptcies in other industries, the AlixPartners survey said.
This year is expected to be another big year for bankruptcies.
“You’re going to see one every single month in 2017,” Lopez-Castro said. “Once you lose a customer, it’s very hard to get that customer back.”
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