An Aéropostale store front.

NEW YORK — Aéropostale Inc.’s bankruptcy filing Wednesday shows that the malaise in the teen market just won’t let up. It also could result in a bitter fight between the retailer and its major shareholder, Sycamore Partners, which happens to be one of its major vendors as well.

The struggling retailer filed a voluntary petition for Chapter 11 bankruptcy court protection on Wednesday morning in Manhattan bankruptcy court. The petition listed total assets of $354.4 million and total liabilities of $390 million. It listed LF Sourcing Millwork LLC, the Li & Fung sourcing division, as its largest unsecured creditor at $14.3 million.

The teen retailer said it plans to emerge in six months with a “right-sized store footprint.” It also plans to use the process to “shed or renegotiate some burdensome contracts,” as well as resolve its “ongoing disputes with Sycamore Partners.” The company has a commitment of $160 million in a debtor-in-possession financing facility from Crystal Financial.

Even as it reorganizes under court protection, Aéropostale said it will continue to seek a buyer. Any sale is likely to take place during the six month time frame of its bankruptcy proceedings, the retailer said.

As part of the bankruptcy, Aéropostale said it will close an initial 113 U.S. locations and all 41 stores in Canada. The firm will continue to review its store leases to determine whether those terms are competitive with current market dynamics. The sites that are slated to shutter will have store closing sales beginning this weekend. Those in Canada will begin store closing sales on Monday.

The bankruptcy filing also included a Rule 2004 motion to compel Sycamore’s managing director to be deposed in connection with the disputes between the two firms.

Aéropostale’s chief financial officer David J. Dick said in the court filing that one of the company’s major problems was private equity firm Sycamore Partners. Sycamore is a pre-petition lender, and also owns a sourcing firm called MGF Sourcing, which became one of Aéropostale’s largest suppliers. Dick said MGF and Sycamore forced the company into cash in advance terms, that the actions were unauthorized and that the actions jeopardized the company’s turnaround efforts.

“It has become increasingly clear to me over the course of the last several weeks since Sycamore and MGF first demanded cash in advance terms — before manufacturing or supplying any merchandise — that Sycamore was using its leverage over MGF to precipitate the filing of these Chapter 11 cases,” the cfo said.

Dick also alleged in the court document that Sycamore’s managing director Stefan Kaluzny reached out to the retailer’s other supplier, L&F, and suggest that it should change its cash terms to “COD” because “Aéropostale was likely to file for bankruptcy in March or April of 2016.”

The cfo added that the company made some preferential payments to MGF and L&F to obtain some of the merchandise it needed, and added that MGF’s actions placed the retailer at risk of violating a $70 million minimum liquidity covenant that was part of a pre-petition loan from a different Sycamore affiliate.

A spokesman for Sycamore, Aéropostale’s largest secured creditor, denied the allegations by the teen retailer. He said Sycamore intends to defend itself vigorously. “Unfortunately, Aéropostale management has been unable to reverse the company’s disappointing financial performance, which led to today’s bankruptcy filing.” He also confirmed that MGF Sourcing exercised its “contractual rights to reduce or eliminate payment terms once Aéropostale’s liquidity fell below $150 million,” noting that the action was permitted under the terms of its sourcing agreement with the retailer.

Aéropostale has also filed a motion to compel MGF to honor the terms of its agreement, which prompted MGF late Wednesday to file an objection to that motion.

Sycamore on behalf of its affiliates has also filed an objection to the motion for approval of the debtor-in-possession financing facility. That document noted that “since their 2014 initial investment, the debtors have proven to be a financial disappointment of epic proportion.” The document noted that between fiscal 2012 to fiscal 2015, sales have fallen from $2.39 billion to $1.51 billion, and comparable store sales have declined by over 30 percent. It also said the retailer has been “hemorrhaging cash,” losing $289 million between 2013 to 2015. The document also said that the term loan lenders and MGF have acted within their legal rights and that it became clear in January 2016 that “their investment in the debtors was imperiled and they were compelled to protect themselves as creditors.”

And Sycamore threw out an allegation of its own: “In the face of the term loan lenders’ concerns, the debtors accepted no responsibility for their own financial and operating performance failures…. [T]he debtors consistently have eschewed requests for commercial transparency, and have rebuffed good faith attempts to work together to understand the problems underlying the business or to achieve a realistic and mutually beneficial outcome in light of the circumstances.”

Jude M. Gorman, general counsel at Reorg Research, which tracks bankruptcies and distressed debt, said the bankruptcy is “unusual” since those allegations usually are not filed on the first day of a case. He noted that the allegations are just that at this point, and still need to be proven in bankruptcy court. He also said that Rule 2004 motions are “used to find out what someone allegedly did,” and that requests are not automatic. Gorman also explained that the reason for the deposition is to “get more information to see if there are other causes of action, such as breach of duties or tortious interference.”

Julian Geiger, Aéropostale’s chief executive officer, said, “While initiatives such as the implementation of our two-chain Factory and Mall strategy and our merchandise repositioning have started to gain traction, the ripple effects of an ongoing dispute with our second-largest supplier put substantial strain on our liquidity while also preventing us from realizing the full benefits of our turnaround plans.

“As a result, we have chosen to take more decisive and aggressive action to create a leaner, more efficient business that is well-positioned to compete and succeed in today’s retail environment,” Geiger said.

The bankruptcy petition was expected as there have been rumblings for weeks that the retailer was considering the option. Earlier this year it began cutting jobs in a cost reduction move.

While Aéropostale indicated that the dispute with Sycamore hindered its chances of a turnaround, the retailer is merely the latest in a string of teen brands to hit the wall. Earlier this year Pacific Sunwear of California filed a voluntary Chapter 11 petition and has a deal with its secured term loan holder Golden Gate Capital to take it private, although that could change if another bidder comes to the table and the company goes up for an auction. PacSun on Tuesday won the approval of a bankruptcy judge to begin soliciting bids for the company. The approval could open the Anaheim, Calif.-based retailer up for auction if it receives at least one qualified bid in addition to the stalking horse offer.

In the last two years, teen retailers such as The Wet Seal, American Apparel, Quiksilver and Deb Shops have all filed — of the four, Deb Shops is the only one that is no longer in business. Wet Seal was acquired by Versa Capital during the bankruptcy court auction, while both American Apparel and Quiksilver successfully reorganized.

Craig Johnson, president of Customer Growth Partners, said one of the issues faced by retailers today is the “crowding out” phenomenon in which the share of discretionary income for apparel gets “squeezed out” by growth in spending in other areas.

He said that while all retailers face the same issue, the “problem shows up first in the teen sector. All Millennials have enough stuff. They want experiences. They want Netflix and dining out with friends. The purchase of actual physical merchandise is going down.”

Johnson explained that the teen sector did well from 2004 to 2007 and most retailers over-expanded their store base. PacSun, for example, had almost 1,000 stores at its peak. Some, such as Forever 21, have huge boxes. Now with competition from fast-fashion players and less square footage productivity in each store, some are finding there is insufficient demand from consumers to justify the existing store base.

In the case of Aéropostale, Johnson said another problem is that the retailer moved away from its core teens aged between 14 and 17, and at some point skewed toward pre-teens and even to as young as fifth graders. “Most of these teen stores have about two-thirds of their shoppers as female, and the only thing that kills [high school] young women in a store is seeing their kid sister or brother shopping in the same place,” Johnson said.

He said that lately the teen retailer has been showing signs of increased conversion and better traffic at its stores, now that it’s gone back to focusing on shoppers ages 14 to 17. “They were unable to add enough older female customers to compensate for the loss of the younger crowd,” Johnson said.

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