Teen apparel retailer Pacific Sunwear of California has filed for bankruptcy protection, a victim of the shift to online shopping, competition from fast-fashion retailers, and its own strategic missteps.
PacSun said Thursday it plans to emerge from the Chapter 11 process as a private company. Under a debt-for-equity agreement, it will convert more than 65% of its debt into equity and receive at least $20 million in new capital from the private equity firm Golden Gate.
According to Fortune, the company has $90 million in long term debt coming due this year, “a crippling amount for a company with $800.9 million in annual sales last year.”
“The bankruptcy process gives us the ability both to fix our balance sheet by reducing our long-term debt by more than 65%, and reduce our annual occupancy costs,” PacSun CEO Gary Schoenfeld said in a news release.
PacSun, which was founded as a surf shop in 1982, currently operates 593 stores in malls across the United States and in Puerto Rico, employing about 2,000 full-time workers. The stores will continue to operate without interruption to customers, employees or vendors, the company said.
As The New York Times reports, PacSun has joined “a string of retailers that have filed for bankruptcy over the last year, including American Apparel and Quiksilver, as the industry struggles to keep up with changing consumer tastes and a shift to shopping online.”
The retailer lost $10 million in the fourth quarter, compared with a net loss of $26 million over the same period the previous year. In court papers, Schoenfeld said sales had been hit by the “fundamental shift in consumer behavior away from traditional mall shopping toward online-only stores” and the emergence of fast fashion as a new competitive threat.
In addition, he said, prior management had made such “critical” mistakes as discontinuing the sale of sneakers in 2008, creating too large a store footprint, and having no cohesive e-commerce strategy.
“[D]espite successfully reducing the store fleet and making consistent progress to improve operations, the company’s maturing capital structure and high store occupancy costs have proved untenable,” Schoenfeld wrote.