The apparel based retailer sector has recently seen a considerable amount of restructuring activity as multiple waves of disruption have pressured the business models of legacy retailers.  Declining foot traffic at malls has been a significant headwind, as retailers have been forced to quickly adjust to a world in which a large number of stores is no longer the key to success, but can actually be an impediment.  The rise of fast fashion, led by newcomers Forever 21, H&M, and Zara, has exposed weaknesses in the supply chains of many apparel retailers, forcing legacy retailers to drive sales through more intensive promotion of existing inventory, rather than through consumer excitement over new inventory.  Digital native competitors are attacking via a geography agnostic approach that is resetting customer expectations around service, breadth of offerings, and quality presentation.  As a result of these changes, legacy retailers have seen a number of restructuring situations, both in and out of bankruptcy court, with more to come.  The multi-pronged challenges facing the apparel retail sector have already given rise to a number of restructuring situations, and the pace of change in this sector is nearly certain to cause further distress as legacy retailers seek to reset for a new competitive environment.


Declining Relevance of Malls

Malls are no longer the most efficient venues for apparel retailers to attract customers.  As a result, many retailers have found their mall-based stores to be incredibly restrictive as they seek to adjust to changing industry dynamics.  The extent of this dilemma was highlighted when former 90s retail darling Aeropostale announced a chapter 11 plan of reorganization in which the company’s two biggest landlords, Simon and General Growth Group, agreed to purchase the company and keep 230 stores open for the immediate future.


Faster, Better Cheaper

Fast Fashion has forced a drastic acceleration in the operational tempo of legacy apparel retailers.  Industry innovators such as Zara, H&M, and Forever 21, have each optimized their business models for a tight supply chain control/integration and rapid inventory turnover, and this approach, which brings with it the promise of higher margins (through less discounting) and superior working capital (through more rapid inventory turns) is creating a virtuous cycle which legacy retailers are finding difficult to combat.

The Omni Channel World

The race to a true omni channel offering among retailers is on, and it is by no means limited to the apparel retail sector.  Walmart’s recent purchase of, and Target’s recent announcement of historically high spending on ecommerce infrastructure, illustrating the seriousness with which even bricks and mortar giants view the opportunity and challenge of omni channel.  However, it appears that the digital natives, unencumbered by legacy infrastructure, are currently best positioned to win the omni channel race, as retailers such as Warby Parker selectively build out physical locations.


The apparel retail sector is facing overlapping waves of disruption that are effectively erasing the sources of competitive advantage (location, business model, customer experience) on which legacy retailers built their dominance.  The speed and severity of this disruption is very much the cause of the bankruptcies and out of court restructuring activity that has been seen in apparel retail, and the near-term forecast would seem to indicate further restructuring to come.

About the Author:

David Johnson is a career change agent who has served as interim manager or financial advisor on over $5 Billion of distressed middle market transactions.  David has several publications to his credit and is a regular speaker on the topics of change management, performance improvement, turnaround and restructuring.  He can be contacted at or 312-505-7238.