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Chic clothier BCBG Max Azria files for bankruptcy, citing online trends

Chic clothier BCBG Max Azria files for bankruptcy, citing online trends
BCBG Max Azria failed to keep up as shoppers turned both increasingly online and to lower-priced fast-fashion rivals, analysts say. Above, its spring 2016 collection modeled during Fashion Week in New York. (Richard Drew / Associated Press)

BCBG Max Azria Group, the once-glamorous retailer that has dressed the likes of Drew Barrymore and Kate Winslet, filed for bankruptcy protection Wednesday.

The Los Angeles company is just the latest high-profile local clothier to file for Chapter 11 bankruptcy, following on the heels of American Apparel and Nasty Gal.

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BCBG — an acronym for the French phrase "bon chic, bon genre," meaning "good style, good attitude" — was known for years as a destination for prom dresses, party frocks and stylish clothing at an aspirational-but-attainable price point. But analysts said that the mall staple failed to keep up as shoppers turned both increasingly online and to fast-fashion rivals that deliver trendy clothes at a low price.

"BCBG, you have product every month or every three months," said Jessica Ramirez, retail research analyst at Jane Hali & Associates. "But at Zara, if I go in today, in the next two weeks they will have something new. That shifted the consumer to ask, 'Why don't you have something new every time I walk in?'"

Holly Felder Etlin, BCBG's chief restructuring officer, acknowledged the company "has fallen victim in recent years to adverse macro-trends."

Those trends include "a general shift away from brick-and-mortar to online retail channels" and "a shift in consumer demographics away from branded apparel," Etlin wrote in bankruptcy documents.

BCBG laid out two versions of its future: a sale in a court-supervised auction in May or a debt-for-equity swap with its junior debtors who are owed about $290 million. The company owes lenders nearly $460 million. BCBG said it has secured $45 million in new financing to keep the business running while it's in Chapter 11 proceedings.

As part of its restructuring, the company closed 120 U.S. stores this year. BCBG is also beginning to close free-standing stores in Canada and consolidating operations in Europe and Japan. According to Reuters, BCBG's advisors told landlords in a January call that its retail bricks-and-mortar business had plunged 20% over the last three years.

At the same time, BCBG has failed to capitalize on the growing power of e-commerce. The company has failed to set up a large presence on the Web, and e-commerce sales are "a small proportion" of its overall business, bankruptcy documents said.

"Fully exploiting the growth of online retail remains an ongoing process," according to the documents.

Analysts said that what online presence BCBG has is stale compared with up-and-coming brands that have popped up in recent years, fueled in part by the marketing power of social media.

BCBG's Instagram page, for example, features mostly shots of models wearing its clothing and also close-up product photos. Reformation, a younger Los Angeles apparel brand that also sells sexy apparel, includes more street-style photography and pictures of social media stars sporting its clothing in dreamy locales.

"Their Instagram, their online presence, even that looks outdated," Ramirez said. Failing to connect with shoppers online, she said, means missing entire swaths of young consumers who hop onto their computers to find style inspiration, instead of heading to their local department stores.

It's a long fall for BCBG, which was founded in 1989 by Tunisian designer Max Azria. The brand was synonymous at one point with a kind of trendy sophistication at a reachable price.

In 1998, BCBG gained even more fashion credibility by acquiring design house Herve Leger, best known for expensive and skintight bandage dresses.

But BCBG has long lost that trendy cache among its young customers.

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"The generation that is the teen shopper now is not the teen shopper we once were," said Ramirez, recalling that she saved up money from an after-school job to buy a teal BCBG dress for her high school graduation ceremony. "They have a completely different mindset in the way that they shop and the way that they think."

In 2015, BCBG got a $135-million cash infusion and also restructured its debt. In August, as part of further debt restructuring, Azria lost his majority equity stake and stepped down as CEO, the documents said.

Follow Shan on Twitter @ByShanLi

UPDATES:

3:35 p.m.: This article was updated with analyst comments.

This article was originally published at 1:10 p.m.

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