Loft

Why healthy brands sell cheap: leases plus US bankruptcy law

Pressed on why profitable brands sell for a fraction of revenue, Tai explains the mechanism: brick-and-mortar firms signed 5-10 year leases, then Amazon and COVID hit. US bankruptcy law lets a company shed those leases only by surrendering the brand to a buyer, sometimes via a 363 sale.

“Long-term leases that brick-and-mortar companies have have 10-year horizons, 5 to 10 years. So they signed these leases in 2015, '17, '18. All of a sudden, Amazon had slowly been eating away, plus COVID. It's so all of a sudden now the way the U.S. bankruptcy law, which is very sophisticated, the best bankruptcy law in America, I— in the world is the American bankruptcy, really. And it says, no problem, Ascena, you're a publicly traded company, you own Dressbarn, Ann Taylor, Loft, all these brands. We'll let you— can get out of those leases with Dressbarn, but you'll have to declare bankruptcy and somebody else gets your brand.”