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According to business analysts, the global fashion industry and the luxury goods sector continue to grow in both commodity and monetary terms.  At the same time, according to The Business of Fashion, fashion companies are going bust at record pace. Most bankruptcy cases were initiated by companies that adhere to the traditional offline sales model (through boutiques, stores or departments in shopping malls) in the mid-price segment.


Among the main reasons for financial failures, according to analysts, is the impossibility to withstand competition from fast-fashion companies and the ebbing away of customers from shopping malls (customers are ever more frequently preferring to shop online). Conservative retail needs more time to adapt its business models to the growing fastidiousness of modern consumers and the new challenges they create. Thus, BCBG MAX AZRIA GROUP, a famous US-based company which specialises in designing and manufacturing cocktail dresses and evening gowns, filed for Chapter 11. Chapter 11 regulates the most common bankruptcy proceedings in the USA, which is the reorganisation of insolvent companies under the guidance of the previous management in an attempt to avoid outright liquidation.

To initiate the procedure, a debtor company should file the corresponding petition with a court and then devise a plan for the reorganisation and restructuring of its debts which would allow the company to stay afloat.The debtor company and its assets are managed by the existing management but under the supervision of a creditors’ committee and the court. As its main measures, the BCBG MAX AZRIA GROUP reorganisation plan, for which the companywas assigned additional financing of USD 45,000,000, presupposes the possible sale of the company, with the closure of about 120 stores from its chain and the consolidation of the company’s operations in Europe and Japan.

Among the high-profile cases that have been closed recently in the USA we may also refer to the bankruptcy of the California-based online retailer Nasty Gal and of the company American Apparel. The first company was sold at an auction for USD 20,000,000 to the British retailer, which may give Nasty Gal another chance. The second company was passed down to the Canadian producer of clothing Gildan Activewear which won the auction for the purchase of the production capacities and IP previously owned by American Apparel for USD 88,000,000 in cash, having thus outbid the proposals of Forever21 and Amazon.


European retail is facing similar problems. It was a huge shock for the fashion market to learn that one of the longest established heavy weights of British commerce, British Home Stores (BHS), could not overcome its financial difficulties. The company was sold to Al Mana Group as aloss-making asset for £1 and now subsists only in online retailer format.

According to British analysts, about 44% of British retailers are now on the verge of bankruptcy. Specifically, the British company Jaeger announced its dire financial state in the spring of 2017. The absolute favourite brand of Kate Middleton, the Duchess of Cambridge, was unable to keep up with its competitors (such as Burberry) and withstand the pressure from mass-market chains (Zara, H&M); it applied for an administrator to be appointed. Such companies as Agent Provocateur, Banana Republic, Peacocks and some others applied for the administration order over the recent several years.

According to UK bankruptcy legislation, anadministrator is appointed by a court decision (an administration order) to manage a company’s affairs so as to preserve it, and approve an agreement over the restructuring of its debts with the creditors or the sale of its property and other assets at a price higher than would be achieved through liquidation. The administrator’s main responsibilities include control over the entirety of the company’s property; devising proposals to attain the goals set out in the administration order; convening the meetings of creditors to discuss the above proposals, and the subsequent implementation of arrangements reached within the framework of the direct management of the company.

Through skillful management and the timely adoption of business solutions, the company may indeed be saved from bankruptcy, as was the case with the Warehouse brand, which overhauled its board of directors, its creative director and chief account manager, and brought in the former digital director of TopShop, the British mass-market brand. The strategy developed by the new management, the brand philosophy and pricing policy helped the companyto celebrate its 40th anniversary in 2016.

The history of global fashion shows that such famous brands as Tommy Hilfiger, Escada, Gianfranco Ferré, Christian Lacroix, and Yohji Yamamoto have faced financial issues at different times; however, effective management solutions helped these companies to overcome bankruptcy processes, retain their businesses or pass to a new cycle of development.


No succession of bankruptcies has befallen the domestic market of the fashion industry, which has nonetheless thinned out noticeably since 2014. Year 2016 was marked by the introduction of the final bankruptcy phase with respect to Kira Plastinina Style LLC, which owned such brands as Lublu Kira Plastinina and Kira Plastinina. It follows from the documents the provisional administrator submitted that it appears impossible to restore its financial and business operations since the balance value of debtor’s property and assets is not sufficient to make settlements with creditors; the claims of the latter totaled about RUB 2,000,000,000. Outstanding rental payments account for the most of the debts.

The Kira Plastinina brand developed rapidly on the Russian market starting from 2007. During its golden age the chain consisted of 279 Kira Plastinina stores in 7 countries and 56 boutiques of the premium line of the brand, Lublu Kira Plastinina, in 16 countries. However, in 2016 the retailer decided to cut the total number of its stores in Russia by almost 30% owing to the soaring costs resulting from the devaluation of the rouble.

Carlo Pazolini, a large shoemaker that has an extended chain of stores (over 200) not only in Russia, but also in Italy, the USA, Czech Republic, Ukraine, Moldova and the Baltic States, is in no better a position. Since the rise of foreign currency rates meant that investing in international projects became unfeasible, the management decided to close its US-based stores and cut the number of stores in Europe. The need to reduce the number of sales outlets has arisen in Russia, too. A supervision procedure has been initiated since August 2016 further to the application of JSC Alfa-bank against ZAO Firma Anta, which holds the rights to Carlo Pazolini’s trademarks. It follows from the case files that company’s debt to the bank, including default interest, amounts to approximately RUB 850,000,000. Moreover, JSC Alfa-bank filed a lawsuit for the joint recovery of debt under two credit agreements concluded in 2012 for the amount of USD 11,000,000 and EUR 8,400,000 from three of the retailer’s foreign structures: Carlo Pazolini Trade limited, Carlo Pazolini participación LLP and Carlo Pazolini (Switzerland) S.A. Further to the application of ATB Bank LLC with claims amounting to RUB 660,300,000, an individual bankruptcy procedure has also been initiated against the founder of the company I.A. Reznik.

The analysis of both Russian and foreign bankruptcies on the fashion retail market has revealed a certain trend: the affected companies are mostly traditional representatives of the offline commerce model. Developing an extensive chain of retail outlets is no longer a priority, but rather, on the contrary, such a chain is often unable to cover the costs of its own development. Therefore, companies that ignore modern trends in the fashion industry, where the main focus is on digitalisation, are most susceptible to financial risks.

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