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The Business of Fashion on Instagram

The Business of Fashion on Instagram

An essential daily resource for fashion creatives, executives and entrepreneurs all over the world.

Retailers are caught in an unusual, if not unprecedented situation: they are starting to go bankrupt because the economy is shut down, but the #bankruptcy process itself is a casualty of the lockdowns. The repercussions go far beyond a few delays: in the US, companies use the bankruptcy process to reduce unmanageable debt loads, wiggle out of orders for unsellable clothes and cancel onerous store leases. Those benefits are difficult to realise when stores are closed and the legal system has slowed to a crawl. 
 
In #fashion, the list of bankrupt brands is growing longer by the day: it includes large #retailers like Neiman Marcus, plus smaller brands including True Religion and John Varvatos. A filing by J.C. Penney is expected soon. Some financial experts argue that filing for bankruptcy makes more sense than ever as retailers can be protected from economic uncertainty for a few months. A backlogged bankruptcy court could mean that a judge would be more deferential toward the company s management decisions, says Susheel Karpalani, partner at law firm Quinn Emanuel. Companies may be able to count on their investors to keep them afloat by exchanging debt for increased ownership stakes, Karpalani adds. The investors would be gambling that their stakes would generate higher returns than the portion of their loans they would be able to collect from a bankrupt retailer. 
 
Nothing is certain in bankruptcy, however, and the stakes are high. Companies must indicate a recovery is possible within six months of filing, or creditors can urge a bankruptcy judge to force a liquidation. Covid-19 has made this process even more unpredictable, as even the most meticulous recovery plans could be derailed if the economic climate turns out to be worse than expected, or new outbreaks force stores to close again. [Link in bio]  : @shutterstock
Retailers are caught in an unusual, if not unprecedented situation: they are starting to go bankrupt because the economy is shut down, but the #bankruptcy process itself is a casualty of the lockdowns. The repercussions go far beyond a few delays: in the US, companies use the bankruptcy process to reduce unmanageable debt loads, wiggle out of orders for unsellable clothes and cancel onerous store leases. Those benefits are difficult to realise when stores are closed and the legal system has slowed to a crawl. In #fashion, the list of bankrupt brands is growing longer by the day: it includes large #retailers like Neiman Marcus, plus smaller brands including True Religion and John Varvatos. A filing by J.C. Penney is expected soon. Some financial experts argue that filing for bankruptcy makes more sense than ever as retailers can be protected from economic uncertainty for a few months. A backlogged bankruptcy court could mean that a judge would be more deferential toward the company s management decisions, says Susheel Karpalani, partner at law firm Quinn Emanuel. Companies may be able to count on their investors to keep them afloat by exchanging debt for increased ownership stakes, Karpalani adds. The investors would be gambling that their stakes would generate higher returns than the portion of their loans they would be able to collect from a bankrupt retailer. Nothing is certain in bankruptcy, however, and the stakes are high. Companies must indicate a recovery is possible within six months of filing, or creditors can urge a bankruptcy judge to force a liquidation. Covid-19 has made this process even more unpredictable, as even the most meticulous recovery plans could be derailed if the economic climate turns out to be worse than expected, or new outbreaks force stores to close again. [Link in bio] : @shutterstock

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