Kate Previte
Mrs. Straub
AP Economics
Insight
08 April 2016
Is Pacific Sunwear Going Out of Business?
We all have our favorite places to shop. Whether it comes to buying clothes, food, or other items, we all have our preferences. While this may be true, what are you supposed to do when your favorite clothing store goes out of business? That is what is currently happening to me, and I’m sure many of you, as Pacific Sunwear, otherwise known as PacSun, files for bankruptcy as we speak.
Since the 2008 recession, households in the U.S. are not taking in nearly as much income as they were prior. Although there was a peak in 2013, it still does not make up for the deficit. When a recession occurs, aggregate demand decreases, due to the money supply decrease. In more relatable words, a recession leaves the average family with much less money to spend on luxury stores, such as PacSun, leaving those stores with a decrease in demand for their items. As you can see in figure 1 below, prior to the 2008 recession, real median household income in the U.S. had peaked at around $57,500 annually. Following the recession, the income as of 2014 had only gotten back up to about $53,750 annually. While that is an improvement, that is an average of $3,750 less per household each year. That loss of income affects higher priced items- such as clothes at PacSun, the most, leading them to have to file for bankruptcy.
Figure 1.Graph showing annual real median household income as of 2014 in the U.S. (The Economic Collapse).
Snyder, Michael. “Real Median Household Income – Federal Reserve.” The Economic Collapse. The Economic Collapse, Web. 22 Nov. 2015. 08 Apr. 2016.
Although the store has not yet filed for bankruptcy, according to an article published by The New York Times, they are not the only ones affected by the recession. “PacSun joins a string of retailers that have filed for bankruptcy over the last year, including American Apparel and Quiksilver, as the industry struggles to keep up with changing consumer tastes and a shift to shopping online” (Tabuchi), (see figure 2). While filing for bankruptcy may sound detrimental to some, the store could save itself by doing so. By filing, PacSun will be “under a debt-for-equity restructuring agreement, the company plans to be taken private by Golden Gate Capital” (Tabuchi). Since they are being taken private by Golden Gate Capital, this means that, “[The deal will] convert more than 65 percent of its debt into equity and receive at least $20 million in new capital from the private equity firm Golden Gate, the retailer said in a statement” (Tabuchi). By filing for chapter 11 bankruptcy, the store has the option to either decrease its number of stores, or renegotiate the rent that they pay for their space in shopping malls (Tabuchi).
Figure 2. Picture displaying that American Apparel has gone bankrupt. (Fashionating World).
“American Apparel Claims Bankruptcy Not a Deterrent to Its Future.” Fashionating World. FashionatingWorld, Web. 16 Oct. 2015. 08 Apr. 2016.
Pacific Sunwear as of right now, will “continue to operate [its 601 stores] without interruption to customers, employees or vendors” (Tabuchi). This may be true as of right now, but what is to happen in the future for the store that we all know and love? The only thing we can do as of right now is wait and see what will happen. What do you think will happen to PacSun?
Works Cited:
“American Apparel Claims Bankruptcy Not a Deterrent to Its Future.” Fashionating World. FashionatingWorld, Web. 16 Oct. 2015. 08 Apr. 2016.
Snyder, Michael. “Real Median Household Income – Federal Reserve.” The Economic Collapse. The Economic Collapse, Web. 22 Nov. 2015. 08 Apr. 2016.
Tabuchi, Hiroko. “Pacific Sunwear Files for Bankruptcy.” The New York Times. The New York Times Company, Web. 07 Apr. 2016. 08 Apr. 2016.
I did not know that PacSun was under threat of filing for bankruptcy. Considering PacSun just opened up that big new store at Mayfair Mall, I would have never guessed. It seems like in the last few years the aggregate demand for Pacsun apparel and products has dramatically increased especially with high school and college students. As you mentioned, maybe just closing some stores and negotiating lease prices can make things easier and hopefully prevent a what seems like a company with increasing popularity continue to thrive.
ReplyDeleteThis article was very interesting to me because PacSun is one of my favorite stores and I was unaware that they were filing for bankruptcy. In previous blog comments, people talked a lot about stores being shut down because of the emerging popularity of online stores. I wonder if those, too, are playing a role in this situation. Likewise, I wonder how PacSun is doing, solely on online sales. Shutting down some of their stores, temporarily, and focusing more of their efforts on online sales could potentially help boost their sales, in general. In all, I found this to be very insightful and to provoke a lot of ideas on how PacSun may be able to overcome this bankruptcy.
ReplyDeleteThis was a very interesting article, considering one of the most common answers to where did you get that shirt? is Pacsun. I never knew that there was even a slight threat to their business. You would think that although the economy has gone bad, with the high prices of their clothing there would not be an issue in a slight drop of revenue. Although the closing of Pacsun would be devastating to many teenage girls and guys, i'm sure some of their competitors would be very excited to hear about the bankruptcy, considering their business might increase.
ReplyDeleteThis was an interesting article because I never knew the PacSun was filling for a bankruptcy. I don't shop here, but I know many people that do love this store, so it must be hard for them knowing that they could potentially be going out of business. But this isn't surprising because when I do pass by PacSun in the mall, I rarely see any people in there and it's usually pretty empty. So it would make sense that with them not making enough business as they would like, to shut down. With PacSun being a bit pricey and not too popular they probably won’t last in the long the run because if consumers aren’t making enough money as they were before than it’s going to be harder for PacSun to gain those customers back. Whereas, brands like Express and American Eagle are more well known and popular, so they have an advantage in staying in business even if the income for average U.S household falls.
ReplyDeleteI myself go and shop at PacSun a lot and was surprised to hear that they are going bankrupt because it seemed to me that the demand for their clothes was increasing and more people were shopping there. PacSun seemed like it was rapidly getting more popular and selling more brands of clothing. If they go bankrupt and out of business, that will hurt a lot of teenage closets around the country.
ReplyDeleteI had no idea that this was going on. Does this mean other brands that are trendy and high priced will be going out of business? I truly don't think that they will truly go out of business. Just because they really are so popular. It would be weird if you go into the mall and not see a PacSun. Maybe they will shut down stores that aren't near the ocean because it's harder for people who live in the cold to buy most clothes that they sell during winter.
ReplyDeleteThe closure of stores that were affected by the recession would increase the amount of unemployed or underemployed workers that are experiencing frictional unemployment. This would increase the demand of jobs in retail, but if more stores are filing for bankruptcy, the amount of retail jobs will drop along with the stores. The decrease in stores selling the products will affected the GDP of wherever the clothes are produced. This could allow for a change in the quality of life for those that live in that country. Once again, the United States' economy would be affecting other economies worldwide.
ReplyDeleteI had no idea that PacSun was going bankrupt, since it is such a popular store. The clothes and accessories at PacSun seem to always be in high demand, and with slightly higher prices it would seem that they would have a larger profit. It is so interesting to see that popular stores are having trouble with money and going bankrupt. I wonder over the years what other popular stores have gone bankrupt and been forced out of business. Overall I thought that this was a great topic and I found it very interesting!
ReplyDeleteIt's incredible that such a name brand store would find itself in the position to have to file for bankruptcy, considering it's large consumer market and popularity. However, it makes sense that consumers would choose to spend less during a recession with lower income, and considering Pacsun is more of a luxury than a necessity, people would quickly choose to spend less on Pacsun and more of their spending power on more needed items. Unfortunately, the closing of Pacsun would cause many people to lose their jobs, which would further hurt the economy.
ReplyDeleteI love pacsun and that is where I get a lot of my clothes from. I do see potential for them to go bankrupt though, because they do have really high prices which is kind of ridiculous. There is a lot of people I know who go there but they are also the people who live in households that bring in more income. If pacsun's were to close though that's a lot of people who would lose their jobs, especially when they have 601 stores open. I really hope they don't go out of business though because it is one of my favorite places to shop.
ReplyDelete