NEW YORK, March 21, 2016 /PRNewswire/ -- Asset-based lenders should pay close attention to the comp-store sales and assortment turnover rates of apparel chains focused on tweens and teens, warns Michael McGrail, COO of Tiger Capital Group, in a March 17 feature article for the online publication ABL Advisor.
"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," McGrail writes. "Amid dwindling sales at many (but not quite all) tween and teen-focused chains, the sector is positioned for further consolidation and additional filings."
The article—"Out of Fashion: The Trouble with Tweens and Teens"—explores the struggles of this sector over the past decade. Mall visits by tweens and teens, McGrail notes, are down significantly thanks to everything from the rise of ecommerce and social media, to the willingness of tweens and teens to shop at discounters or even thrift stores.
In the article, the veteran retail liquidation and asset appraisal executive explores why ramping up online sales may not be enough to keep some chains in this sector in the black. He also provides some guidelines for determining which chains have the best prospects for survival.
Retailers that address their cash-flow constraints early, for example, tend to be better positioned to renegotiate and terminate their undesirable real estate, McGrail explains in the piece. "Cash gives retailers options," he writes. "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."
Amid this shakeout, asset-based lenders need to continuously look at the inventory of their borrowers in this sector, McGrail advises. Allowing appraisals to sit for too long poses quite a risk, he explains.
"While staple products such as jeans or white t-shirts do sell year-round, generally speaking apparel inventory is like the seasons: It should turn four times a year (that might be high for certain concepts, but three-plus turns per year would be considered healthy and a good benchmark)," McGrail writes. "Be on guard, then, for anything less than this. Why? Because as the seasons change, underperforming retailers will accumulate more and more unsold, out-of-fashion inventory, and potential recovery values will shrink in kind."
Decreasing comparable store sales can also be an early and clear indication that fickle tweens and teens have moved on from a particular retailer.
The good news is that appraised values in this sector have held in most bankruptcy filings during the past year. "In most cases, tween and teen retailers carry very lean inventory levels – resulting in very quick going-out-of-business sales," McGrail writes in the conclusion to the piece. "The perceived value created by strong liquidation/store closing language leads to better sales and, ultimately, to achieving the recovery of appraised values in bankruptcy scenarios."
The full column is available at
About Tiger Group
Tiger Capital Group provides asset valuation, advisory and disposition services to a broad range of retail, wholesale, and industrial clients. With over 40 years of experience and significant financial backing, Tiger offers a uniquely nimble combination of expertise, innovation and financial resources to drive results. Tiger's seasoned professionals help clients identify the underlying value of assets, monitor asset risk factors and, when needed, provide capital or convert assets to capital quickly and decisively. Tiger's collaborative, straight-forward approach is the foundation for its many long-term 'partner' relationships and decades of success. Tiger maintains offices in New York, Los Angeles, Boston, Sydney and San Francisco. To learn more about Tiger, please visit www.TigerGroup.com
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SOURCE Tiger Group