Is Pacsun going out of business? In April 2016, the surf and skate clothing company PacSun filed for bankruptcy. This happened due to changing teen fashion trends and long-term debt problems. PacSun was bought by San Francisco-based private equity firm Golden Gate Capital shortly after it emerged from bankruptcy. It ultimately reduced the number of its stores and a significant portion of its debts in a debt-for-equity exchange.
An American fashion retail brand is called Pacific Sunwear of California, LLC. The business offers swimsuits, footwear, accessories for young adults and teenagers, and everyday clothing. The business had 325 locations across all 50 states and Puerto Rico as of 2022. The PacSun company has its head office in Anaheim, California, and a distribution center in Groveport, Ohio.
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Why did PacSun close?
In contrast to the general trend in retail bankruptcy, Pacific Sunwear of California (PacSun) emerged from bankruptcy. It bounced back with almost the same physical footprint as before its April 2016 bankruptcy. However, that does not imply that the shopping centers of teen retailers are unaffected. Before applying for Chapter 11 protection, the company closed hundreds of stores and changed its growth strategy.
PacSun surrendered all of its stock to members of private equity company Golden Gate Capital, its primary lender. It was done as part of a reorganization plan accepted by the U.S. Bankruptcy Court in Delaware on September 6, 2020. As per Bloomberg, Golden Gate has decided to invest $20 million in PacSun. It also agreed to lower the company’s debt from $88 million to roughly $30 million. The remaining $88 million will be paid by PacSun to its creditors.
When PacSun declared bankruptcy in April 2016, the company had 593 locations. Since then, the company has secured improved rent terms with mall owners for its stores. Also, the company shuttered about 10 of its sites. In 2020, PacSun ran 583 stores across all 50 states and Puerto Rico.
Before filing for Chapter 11, Pacific Sunwear had been losing money since 2008. Also, it has struggled to compete with cheaper, more up-to-date fast-fashion competitors. This includes Forever 21 and H&M, which have the intelligent logistics to keep up with trends as they develop. “Younger millennials are hanging onto their income and deciding to spend it on experiences rather than new clothing.” This is according to teen shops like PacSun.
Did PacSun go out of business?
Similar to American Apparel, PacSun was ruined by the development of fast fashion and the fall of brick-and-mortar footfall. The company’s focus on a single style could have been more helpful. In 2016, the same year PacSun filed for bankruptcy, Betty Chen, a senior consultant with Mizuho Securities, told the Los Angeles Times: “There is a broad trend over the past two to three years of decreasing demand in surf and skate.”
A portion of the style is moving further towards basketball and sports, along with more hip-hop or streetwear. Although PacSun did expand beyond surf and skatewear, the company’s decision to stop selling footwear didn’t help. This is according to the LA Times story. Unfortunately, the company was in financial danger because of high utility costs and rising debt.
PacSun teamed with Wells Fargo and Golden Gate Capital to restructure through a debt-for-equity deal. The company had to liquidate only 20 of its 593 locations compared to American Apparel and Betsey Johnson. It achieved enhanced rent agreements, which had been a central sore spot before filing for Chapter 11.
Josh Olshansky, a managing director at Golden Gate Capital, claims that PacSun “made the switch beyond its early history” due to reorganization. Also, it added new brands to produce a complete portfolio representing the “California style.” Eddie Bauer, another store that Golden Gate Capital recovered from bankruptcy, joined PacSun in 2018.
PacSun survived the Chapter 11 process much better than other retail bankruptcies. This includes Sports Authority, which sold all of its shops. As well as Aeropostale, which was rescued by an eleventh-hour proposal from a group backed by mall owners but will only keep a portion of its shops open.
About 590 locations were open when PacSun filed for bankruptcy in April. Since then, the business has secured cheaper mall rentals for its surviving stores while closing 10 to 20 locations.
PacSun performed well in 2020, despite the COVID-19 outbreak. Since June 2020, there have been more job openings. The positions in shop management have increased by around 28% since January 2020.
Conclusion
Although there is a high chance of additional closings, PacSun successfully managed its bankruptcy. On the contrary, Sports Authority, Hancock Fabrics, and Sport Chalet have all declared bankruptcy and have, in reality, been liquidated. A similar tragedy appeared to be in store for Aéropostale until a consortium intervened. They allowed the business to maintain 229 of the 800 outlets it had run before declaring bankruptcy in May 2016.
Despite this, Golden Gate Capital is optimistic about PacSun’s potential to make a comeback. Josh Olshansky, the managing director, claimed in a statement that the retailer’s company was “fundamentally healthy and strong” and outperformed several of its rivals.
