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Apparel Maker Was No Longer Joined to the Hip

Hot Topic founder Orv Madden bet big on Generation Y when he launched fashionable apparel retailer Metropark USA Inc. But his luck has run out.

The L.A. company filed for Chapter 11 bankruptcy last week. The chain’s target customers, hip 20- and 30-somethings, have stopped dropping $200 on a pair of designer jeans.

Competition from Internet discounters and companies such as H&M and Forever 21 wiped them out, along with the recession that spread unemployment through the customer base.

Metropark, with locations in such prominent L.A. malls as Glendale Galleria and Westfield Century City, is winding down its operations. The company began staging going-out-of business sales last week at its 69 stores nationwide with merchandise such as True Religion jeans marked down by as much as 40 percent.

Hitha Prabhakar, principal at New York retail consulting firm Style File Group, said Metropark’s key customers were hit hard by high unemployment and as a result pulled back from spending on pricey discretionary items such as designer apparel and accessories.

“A store like Metropark – stocked with high-end clothing with price points that are between $50 to $200 – that’s the first thing that teens and 20-somethings are going to cut out of their budgets,” Prabhakar said.

Madden started Metropark in 2004 to cater to young adults who’d grown out of Hot Topic’s goth look. The company’s shelves were stocked with premium denim, streetwear-inspired T-shirts and trendy accessories. The strategy seemed to be working: The company registered to file an IPO in 2008.

But the economy tanked and the IPO never happened. Metropark executives found themselves scrambling to find a capital infusion or debt investment during the first quarter of this year to avoid bankruptcy.

Metropark wasn’t able to find a financial backer, but Cathy Hershcopf, a bankruptcy attorney in the New York office of Cooley LLP who is representing Metropark, said there’s still hope that Metropark’s assets can be sold so the brand could live on.

“I believe that one party that was trying to do a going-concern bid will still be interested in the leases and the brand, the intellectual property and is going to try very hard to keep in excess of 40 stores open,” Hershcopf said. She declined to name the party.

Turnaround effort

Metropark, which employs 815 at its headquarters and retail stores, started to show declining sales in 2009. Revenue peaked in 2008 at $123 million, but then dropped to $114 million and $104 million in 2009 and 2010, respectively, according to bankruptcy filings.

In June, amid continuing operating losses, the company brought in former Gap North American President Cynthia Harriss to serve as chief executive. Former Lucky Brand executive Lisa Chi joined the company in January as chief merchandising officer as part of a turnaround strategy. Madden remained a director on the company’s board.

The new executive team crafted a three-year plan that included revamping Metroparks’ website, changing its merchandise assortment and negotiating lease modifications at its underperforming stores.

Despite the turnaround efforts, Metropark got caught in a cash crunch when two major lenders decreased their credit lines late last year and early this year.

The company owes $8.8 million to its vendors. True Religion holds the biggest slice of the debt. Metropark owes about $2.5 million in store leases.

“The debtor faced extraordinary liquidity constraints in the first quarter of 2011,” Harriss said in a bankruptcy filing. “In fact, such constraints limited the debtor’s ability to pay rent to many of its landlords for the months of March and April 2011, to purchase new inventory and normalize the inventory mix of its 69 retail locations and to restore sufficient availability under the credit agreement with Wells Fargo.”

Competitors have captured the dollars of Metropark’s main customer base.

“Their price point wasn’t the price point that was attractive in this kind of economic environment like a Forever 21 or an H&M,” said Jeff Green, president at Phoenix retail consulting firm Jeff Green Partners.

The analysis was confirmed in the bankruptcy filing.

“A proliferation of fast-fashion retail and a glut of premium denim at reduced price points … have impacted Metropark’s product offerings and profit margins,” Harriss stated in the filing.

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