It's been a tough year for retailers, with dozens filing for bankruptcy in the wake of the coronavirus pandemic. Ascena Retail Group (OTCMKTS: ASNAQ) has felt the pain, too. It filed for bankruptcy in July, leaving mall real estate investment trust (REIT) investors to wonder whether its well-known stores, like Ann Taylor, would be shutting down as a byproduct.
But mall operators and investors may not need to worry so much. Ascena has recently entered into a deal with Sycamore Partners, a leading private equity firm, to purchase its remaining brands, including Ann Taylor, Loft, Lou & Grey, and Lane Bryant. (Ascena had previously sold off its Justice brand, which was popular with the pre-teen crowd, and following that sale, it was announced that Justice stores would be permanently closing down.) Sycamore will acquire these brands for $540 million on a cash-free and debt-free basis, subject to certain adjustments as well as the assumption of certain liabilities.
Positive news for retail investors
Sycamore has a history of scooping up retailers, so this recent announcement isn't surprising. The firm already runs Staples, Talbots, and The Limited, to name just a few. Most importantly, Sycamore has committed to retaining a substantial number of the retail stores it's acquiring from Ascena. And that's news that can help investors breathe easy.
Store closures have been abundant in 2020, and there's a good chance that trend will continue well into 2021. In fact, we can't solely blame the pandemic for the shuttering of physical retail locations. Competition from big-box stores and online giants has forced many retail chains to rethink their strategy and shift to an e-commerce model.
But store closures hurt malls -- and the people who invest in them -- in a very big way. Though Ascena's brands aren't anchor stores the same way department stores are, they do have a very strong mall presence. In fact, as of late August, Ascena operated 1,500 stores throughout the country -- stores malls really don't want to lose.
Sycamore, which has the resources and capacity to keep many of these stores open, could help stop the bleeding at a time when malls face a very real vacancy crisis. But doing so will take some work, as well as some strategic marketing and perhaps some rebranding. Right now, the aforementioned Ascena brands are sluggish due to the shift to remote work. And actually, they were sluggish even before the pandemic kicked off.
But once a coronavirus vaccine is widely introduced that helps society return to normal, revenue could easily pick up for stores like Ann Taylor. And under Sycamore's management, the bulk of Ascena's stores could easily thrive in a post-pandemic world, ensuring that they remain loyal mall tenants for the long haul.
The sale from Ascena to Sycamore is expected to be completed by mid-December. From there, Sycamore will have an opportunity to assess its options following the holiday shopping boom and see how it can position its newly acquired brands to appeal to a wider base of customers.