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Can Once-Mighty Teen Retailer Aeropostale Save Itself?

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Image via Shutterstock.
Image via Shutterstock.

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It's no surprise that many clothing brands are having a hard time keeping up with fast fashion apparel, but teen retailer Aeropostale's latest move—the closing 125 of its P.S. stores and cutting of 100 jobs—is a rude reminder that not every retailer will be come out of this battle alive.

Companies struggling to compete with chains like Zara, H&M, and Forever 21 have recently taken strides to fight back and stay relevant in the market. Gap hired Rebekka Bay, previously of H&M's upscale brand COS, to redefine its aesthetic, and Abercrombie & Fitch is distributing millions of dollars in clothing to poor families and reportedly working on a plus-size line to help with brand image. Fashion experts and retail analysts are less optimistic about Aeropostale, which is struggling just as much with branding as it is with cash flow.

Over the last two years, Aeropostale has seen a rapid decline in its gross income growth percentage; in January of 2012, the company was down 30 percent of its gross income, at $624 million, and in January of 2014, it was down 35 percent, reporting $402 million in gross income, according to Factset Research Systems. Plus, its stock (NYSE: ARO) is already down 45 percent for 2014.

Photo by Bloomberg for Getty Images.

In January, Bloomberg reported that activist investor Crescendo Partners was pressuring Aeropostale to sell the company or go private because the retailer had lost money for five straight quarters, even though investors Sycamore Partners gave Aeropostale a $150 million loan. It's said that the move to close 125 mall-based stores of the brand's kid's line, P.S., as well as 50 Aeropostale stores this year, will help the company pay its debts. Aeropostale's accounts payable "ballooned" with delayed rent bills, according to Businessweek—but with the company currently at a $70 million loss, some analysts believe these moves might not be enough to save it at this point.

"They very well may run out of cash in the first quarter," Brian Sozzi of Belus Capital Advisors told Racked.

In the game of competing against other retailers, Aerpostale has stopped being "cool" to its target shoppers. While teens used to flock to the mall to buy logo-heavy apparel from Abercrombie, American Eagle, and Aeropostale (or the "3As"), the internet and social media have made clothing trends instantly accessible, and teens are now more likely to head to H&M to find the latest fashions.

"Clothes from Aeropostale are like nostalgia objects now," said Hazel Cills, a teen blogger and Rookie contributor, to Racked in an email. "I definitely think teenagers aren't as into the labels and logos of Aeropostale clothes because of this. The 'Aeropostale' label doesn't carry the same stylish weight it used to. I don't think it's that kids aren't interested in wearing labels on their shirts, I think it's just that wearing the Aeropostale name on your shirt, like the Abercrombie & Fitch moose, is dated. I associate Aeropostale with clean-cut preppiness and I think teens are more interested in jean cut-offs, boho-leaning, and fake vintage styles. Shopping at thrift stores is now popular, which is the opposite of getting an expensive, labeled t-shirt… the days of Aeropostale being 'cool' are over and it's not a brand that teenagers are gravitating towards."

Photo by Bloomberg for Getty Images.

It's been years since Aeropostale has been relevant, say experts, despite its resilience during the economy's downturn in 2008 and 2009.

"Aeropostale had trouble keeping up with the changing consumer's needs" Aria Hughes, WGSN's Associate Retail Editor, noted. "While they continued to focus on basics, the mood of the clothing industry became accessible and democratic. People wanted to participate with trends and headed instead to Zara and Forever 21."

"They are still so focused on hoodies and their logos, they don't even see the market changing aggressively," Sozzi added. 'They are milking a dead cow."

Fast fashion aside, the shopping habits of Aeropostale's teen shoppers have completely changed, and 3As are feeling the repercussions; Abercrombie CEO Mike Jeffries told analysts last year his company believed "youth spending has likely diverted to other categories." According to Reuters, teenagers are more likely to spend their money on electronics than on clothing, and as the New York Times put it in a January article titled "Where did the teenagers go," "sometimes phones loaded with apps or a game box trump the latest in jeans."

How can Aeropostale be saved? Is there a way the once-loved teen haven can be revived? Hughes believes the company's last hope is celebrity collaborations to draw teen shoppers in.

Photo by Bloomberg for Getty Images.

"Collaborations are the reason why retailers like Kohl's and Kmart [are still afloat]. A lot of it has to do with whom they work with, like Lauren Conrad and Adam Levinet," she said. "Aeropostale still has a customer that is interested in the brand and they can capitalize on the fact that millennial buyers want to be associated with whatever celebrities endorse."

According to a 2014 millennial shopping report by Punchtab's Consumer Research series, teen shoppers spend $600 billion annually. Millennials don't trust advertisements and are brand-skeptic, turning to social media inspiration instead for shopping suggestions, Punchtab explains. The top five places millennials visit are Kohl's, Target, Gap, Sears, and Dick's, many of which do celebrity and designer collaborations.

Indeed, Aeropostale has begun to make moves to attract teenagers: the retailer tapped YouTube teen celeb Bethany Mota for a capsule collection back in December, and they told Apparel Magazine this week they were happy with how the line is selling. In addition to allowing Mota full reign to design the line, Aeropostale let the vlog star announce all collaboration-related news on her channel first, presumably taking comfort in the fact that her giant teen fan base would then beeline to stores. Aeropostale would not comment for this story, but Hughes said she would not be surprised if the company continued to collaborate with other teen celebrities.

A Bethany Mota for Aeropostale ad.

Sozzi also believes Aeropostale can help its brand keep up with fast fashion if it does precisely that—compete.

"They need to start infusing more trend-based clothing into their stores. Right now, they have a few trendy pieces but they are at the back of the store and their floors are still dominated by logo and hoodies," he said. "They need to get the good products to the good parts of the store. They need to give the store a wow factor and bring teens into a store that many of them have forgotten about."