Shoe Retailer Plans Bankruptcy to Shed Unprofitable Stores

Bankruptcy can serve many purposes for a financially stressed New York business, from restructuring its operations to increase profitability to liquidating its assets and going out of business. The women’s shoe retailer Aerosoles is reported to be on the verge of filing a Chapter 11 bankruptcy petition that will allow it to close a number of unprofitable stores in the United States but continue operations.

Aerosoles manufactures and sells flats and wedges that emphasize comfort. The company sells its products in its own stores and in large department stores. Aerosoles has experienced stiffening competition from e-commerce and has experienced difficulty in making its products easily distinguishable from competitive brands.

Aerosoles is expected to take advantage of the provision in Chapter 11 of the bankruptcy code that allows a debtor in possession to reject so-called executory contracts. An executory contract is one that is partially performed but not completely executed. The company can use this provision to terminate leases for stores that are not sufficiently profitable. By shedding the rent obligations, the company can reduce its expenses and concentrate on re-energizing more profitable locations. Aerosoles has about 80 stores in the United States, and it is expected to close about 20 of those locations. The company has more than 300 stores around the world, but the fate of those locations is unknown.

Any business that is experiencing financial difficulties may benefit from consulting a capable bankruptcy lawyer for advice on the many options for financial rejuvenation that bankruptcy offers. A knowledgeable attorney can provide advice on the wisdom of seeking a dissolution under Chapter 7 or a reorganization under Chapter 11, how to reject executory contracts and how to avoid creating voidable preferences.

Source: Nasdaq.com, “Shoe seller Aerosoles plans bankruptcy,” Reuters, Sep. 14, 2017