B: Professor Bloom L: Lucy
L: Hey, professor Bloom. My name is Lucy. This morning, you mentioned that the company Nick Spade is on the verge of bankruptcy. If you have time, could I just discuss their situation with you more?
B: Of course Lucy. What do you want to know?
L: Well, I’m curious about how a company this famous could suddenly be in the red.
B: Well, Nick Spade has been declining for a long time, but it’s last financial quarter was especially bad. Their store sales dropped by 11 percent. For a global company like Nick Spade, it was 60 million dollars.
L: If their sales has fallen so much, it must have hurt their net profits.
B: It has. Nike Spade loss for last quarter was around 150 million dollars. Same quarter last year, it was only 7 million dollars.
L: Why are they having so much trouble though? Several years ago they were doing well, weren’t they?
B: Well, retail has changed a lot over the last few years, and Nick Spade didn’t anticipate the changes. More shoppers have been buying cheaper fast fashion, but Nick Spade kept its price high. Their biggest mistake though was that they didn’t anticipate the race of online shopping. Online shopping has become extremely popular, but Nick Spade has focus on building more physical stores.
L: So now they’ll have to close more stores?
B: Right. But even then, Nick Spade is still in trouble. To build their stores, they had taken out a loan of over a billion dollars in debt, which will be due in three years. And judging from their current financial status, they won’t be able to pay it back.
B: What will happen if they can’t pay it back?
L: They may try to restructure the company by selling off assets, cutting jobs and closing stores. Restructuring could help them pay for the debt. But to do that, they’d have to get an extension on their debt payment. In the worst case and aerial, they will have to fail for bankruptcy.
L: Thanks for explaining it to me. I hope Nick Spade can stay around longer. I really like their clothes.
B: My daughter does too. But markets are cruel. What’s more, their upper management has been replaced, and so have the senior designers. No matter what happens,they will probably be a very different company.
L: Really? That’s such a pity!