Papaya Clothing Bankruptcy Emblematic of Retail Industry Struggles

bankruptcy

Papaya Clothing Files for Bankruptcy

American retailer Papaya Clothing, which sells apparel, shoes, and accessories for teens and young women, has filed for Chapter 11 bankruptcy protection as the company faces a liquidity crisis. The company has a workforce of roughly 1,300 employees, many of whom will face layoffs as stores close.

Papaya Clothing, whose corporate name is Cornerstone Apparel, Inc., has cited consumer trend towards online shopping to be the biggest reason behind its financial woes. Moreover, increased competition has been cutting into its profits as America’s apparel industry gets oversaturated. Decreased profitability has landed the company in hot water, whereby management doesn’t hold enough funds to pay off obligations.

The company also said in its bankruptcy filing that its expansion strategy had been ill-timed, as it couldn’t keep up with the fast-changing consumer preferences. The latest bankruptcy filing shows that Papaya’s store count now stands at 80.

Papaya Clothing opened about 50 stores in the last six years alone. However, its expansion strategy added more operating expenses than revenue to its income statement. The mounting costs of operating physical locations with expensive mall storefronts have forced management into restructuring its business.

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The company aims to continue operating through the bankruptcy proceedings, and afterward completing its restructuring. However, management has indicated that underperforming stores will be identified and closed down. In addition, management will be negotiating rent reductions at its leased store locations.

According to the company’s Web site, Papaya Clothing has about 100 stores across the country. However, the company has been closing some of its underperforming stores, as explained by President and CFO Tae Yi in a declaration filed with the bankruptcy court.

Papaya Clothing is yet another retailer that has become victim to the American retail bloodbath, in which dozens of retailers have gone bankrupt this year. Popular names on the list include Rue21, Inc., The Gymboree Corporation, Wet Seal IP Holdings, LLC and American Apparel Inc. Unlike these bankruptcies, however, Papaya Clothing does not have creditors holding secured debt.

The California-based retailer operates stores in its home state as well as in Arizona, Colorado, Florida, and a dozen other states. The company has a 75,000-square-foot warehouse in California, and it has the capacity to design, manufacture, and deliver clothes to its stores within two days.

Source

Teen Retailer Papaya Clothing Files for Bankruptcy Protection,” The Wall Street Journal, June 15, 2017.

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