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Social changes can lead to financial troubles for businesses

Once upon a time, malls were the most popular place for teens to hang out and meet their friends. Now, however, New York youths are more likely to connect with their friends online before heading out to a physical space. As the ways in which people connect and engage socially change, so too do the ways in which they shop and engage in commerce.

These changes can have big repercussions for businesses and retailers. For example, the clothing company Aeropostale recently filed for Chapter 11 bankruptcy after experiencing several years of dropping sales. The company once counted on foot traffic in shopping malls to drive its sales but, with fewer people shopping in physical stores, it has struggled to keep itself afloat.

Other stores that cater to young people like American Apparel and Wet Seal have also been forced to file for business bankruptcy. Though these entities have chosen a form of bankruptcy that does not require them to close their doors, they are required to formulate reorganization plans that account for their failing business plans and demonstrate methods of improving their financial outlooks.

The Chapter 11 reorganization plan is an opportunity for any entity that wishes to position itself for growth and success in the future. For Aeropostale and similar businesses, reorganization may include shifting plans for profits to better accommodate the social preferences of their targeted consumers. Reorganization plans must be approved by the relevant bankruptcy courts before they may be implemented, but through careful planning, businesses can give themselves fresh starts.

The way that people shop today is very different than the way they shopped in generations past. To stay relevant, many entities have had to change their business practices. Those who have not been able to make the shift can sometimes use business bankruptcy as a way to continue operations and resolve financial troubles.

Source: The Columbian, "Aeropostale's bankruptcy filing reflects retail changes," May 9, 2016

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