Analysis: Tween and teen retailers remain financially vulnerable

Apparel chains focused on tweens and teens are increasingly at risk of filing for bankruptcy protection.



At least that’s the view of Michael McGrail, COO of Tiger Capital Group and a veteran retail liquidation and asset appraisal executive.



“While we have already seen filings from the likes of Cache, Wet Seal, dELiA*s and Deb Shops, this is likely just the beginning of a larger trend. Amid dwindling sales at many (but not quite all) tween and teen-focused chains, the sector is positioned for further consolidation and additional filings,” McGrail stated in an article for ABL Advisor.



Numerous factors are at play in the troubled teen sector, from the rise of online shopping and changing fashion tastes to teens’ penchant for spending on video games and other digital diversions.



Retailers that address their cash-flow constraints early, McGrail advised, tend to be better positioned to renegotiate and terminate their undesirable real estate.



“Cash gives retailers options,” he wrote. “When companies fall into insolvency, options are more limited with respect to lease mitigations. Without sufficient cash on hand, such chains have no choice but to file for bankruptcy. Moreover, without an infusion of additional loans or capital, they will have no means of surviving the expensive process of bankruptcy.”



While staple products such as jeans sell year-round, generally speaking apparel inventory should turn four times a year, McGrail advised, with three-plus turns also considered healthy.



“Be on guard, then, for anything less than this,” he cautioned.



Decreasing same-store sales can also be an early and clear indication that fickle tweens and teens have moved on from a particular retailer.”



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