Papaya is a clothing retailer that was once a staple in malls across the United States. The company, known for its affordable and fashionable clothing for young women, experienced rapid growth in the 1990s and early 2000s. However, in recent years, Papaya has closed the majority of its stores and filed for bankruptcy. So what happened to cause the downfall of this once popular fashion retailer?
The Rise of Fast Fashion
In its early years, Papaya filled a niche in the apparel market, providing on-trend styles at low prices. This allowed the company to thrive in malls during a time when mall foot traffic was high and consumers had fewer low-cost fast fashion options.
However, in the mid-2000s, new fast fashion competitors emerged. Stores like H&M, Forever 21, and Zara offered similar styles at similarly low prices. These larger corporations had more financial resources and international supply chains, allowing them to quickly replicate runway looks and get them into stores faster. Papaya struggled to keep up with the pace of the fast fashion leaders.
Decline of Malls
At the same time fast fashion competition was heating up, traffic to traditional malls started to decline. Online shopping was taking off, led by ecommerce giants like Amazon. Consumers, especially younger demographics, started doing more of their shopping online and less at physical stores.
As a primarily mall-based retailer, Papaya struggled as foot traffic declined. Less customers coming through the doors meant lower sales and an inability to sustain a large brick-and-mortar footprint. The brand started shuttering underperforming locations, with more than 100 stores closed by 2018.
Bankruptcy and Store Closings
Falling mall traffic coupled with growing competition proved unsustainable for Papaya. In 2016, the company filed for Chapter 11 bankruptcy protection and announced plans to close stores and restructure.
However, Papaya continued to struggle after emerging from bankruptcy. In 2019, the retailer filed for Chapter 11 again, with plans to close all of its remaining stores in a complete liquidation. At the time, Papaya had just over 100 locations left, down from nearly 300 at its peak.
What’s Next for the Brand?
While Papaya has closed all of its physical retail locations, the brand still lives on through online sales. The papayaclothing.com website remains active, selling the company’s signature casual dresses, tops, bottoms, and accessories.
It’s unlikely that Papaya will return to brick-and-mortar shopping given the costs involved. However, the brand may be able to carve out an online niche going forward. Though the stores are gone, Papaya still has existing brand awareness and equity that could translate to ecommerce sales.
The rise of fast fashion and fall of malls proved to be a lethal combination for Papaya’s business model. But the brand lives on, joining the ranks of retailers who now exist primarily online. While bankruptcy and liquidations signaled the death knell for its physical stores, Papaya may still have a digital future ahead.
The History of Papaya
Papaya was founded in 1999 by SK Wong and his wife Cindy. The first store opened in Calexico, California right on the Mexico border. This allowed the company to source production from Mexico to keep costs low.
The brand was named Papaya to evoke a tropical, beachy lifestyle that connected with its California roots. The original styles focused on casual dresses, tops and bottoms targeting young women.
| Year | Key Milestones |
|---|---|
| 1999 | First Papaya store opens in Calexico, CA |
| Early 2000s | Rapid expansion across the United States, primarily in malls |
| 2006 | Papaya reaches its peak with nearly 300 stores |
| 2009 | Founder SK Wong retires, Thomas Mendoza becomes CEO |
| 2012 | Company starts closing underperforming stores |
| 2016 | Files for Chapter 11 bankruptcy protection |
| 2019 | Files for second bankruptcy and announces full liquidation |
The early 2000s represented a period of rapid expansion for Papaya. The brand was gaining popularity for its on-trend, affordable clothing. Riding the momentum, Papaya grew to its peak store count of close to 300 by 2006.
However, market conditions started to shift. The rise of fast fashion and declining mall traffic put increasing pressure on Papaya’s business model. In 2009, founder SK Wong retired after 10 years at the helm and handed leadership over to Thomas Mendoza.
Facing new challenges, Papaya started closing underperforming stores in 2012. But the closures weren’t enough to reverse course, and the company ultimately filed for bankruptcy protection in 2016.
After restructuring and emerging from the first bankruptcy, Papaya continued to spiral downward and filed for a second time in 2019. This bankruptcy resulted in a complete liquidation of its remaining 100+ stores.
Sales Trends and Financial Decline
In tandem with its store closures, Papaya experienced worsening sales trends and financial losses starting in the early 2010s:
| Year | Revenue | Estimated Comparable Sales Growth |
|---|---|---|
| 2010 | $175 million | +2% |
| 2011 | $168 million | -4% |
| 2012 | $161 million | -6% |
| 2013 | $150 million | -10% |
| 2014 | $140 million | -12% |
After posting modest comparable sales growth in 2010, Papaya reported declines in revenue and comp sales in the following years leading up to its first bankruptcy in 2016. From 2010 to 2014, revenue dropped 20% from $175 million to $140 million.
Not only were sales falling, but losses were mounting. Papaya reported a net loss of $19 million in 2015, followed by $26 million in 2016. The growing losses left Papaya cash flow negative and ultimately unsustainable without bankruptcy protection and reorganization.
The sales declines were blamed on factors like declining mall traffic, growing competition from fast fashion brands, and missing fashion trends. These issues made it difficult for Papaya to attract customers, forcing discounts that cut into margins.
Industry and Consumer Shifts
There were a few key industry and consumer changes in the 2010s that contributed to Papaya’s decline:
Growth of Ecommerce
– Online shopping accelerates, led by Amazon and digital native brands
– Mall traffic declines as consumers shift more spend online
– Ecommerce sales grow from 5% of retail in 2008 to over 15% by 2018
Fast Fashion Expansion
– H&M, Forever21, Zara and other fast fashion brands expand
– Trendy, inexpensive, rapidly-cycled inventory appeals to consumers
– Increased competition for Papaya in the discounted/fashion apparel space
Casualization of Fashion
– Streetwear and athletic brands become more popular
– Consumers embrace casual clothing over dresses/formalwear
– Papaya stock less aligned with shifting consumer preferences
The combination of these factors created substantial headwinds for clothing retailers tied to physical stores and traditional shopping malls. For Papaya, heavily reliant on mall foot traffic, the new landscape proved challenging.
Advantages of Competitors
Beyond broader industry changes, Papaya struggled to keep pace with competitors on a few key dimensions:
Pricing and discounts – Fast fashion brands competed aggressively on price with discounts and promotions. Papaya had less flexibility to lower prices.
Speed – Zara and H&M were faster at replicating runway styles and getting new inventory in stores. Papaya’s supply chain couldn’t keep up.
Branding and marketing – Rivals had stronger brand awareness and loyalty. Papaya spent less on advertising and promotion.
Online presence – Competitors integrated ecommerce and social media into marketing. Papaya was late to develop its online operations.
Sourcing – Larger competitors had diversified international sourcing that provided cost and speed advantages.
Falling behind on these factors made it hard for Papaya to differentiated itself as it battled declines in mall traffic. The competitive advantages of fast fashion disruptors put increasing pressure on the business.
Conclusion
In the end, Papaya fell victim to shifting consumer preferences and an outdated reliance on mall-based stores. Fast fashion competition and the rise of ecommerce rendered its original business model unsustainable.
Though the brand lives on online, Papaya will be remembered as a cautionary tale of failing to adapt and innovate. While its original model propelled impressive early growth, the company sputtered in response to changing times.
Papaya learned the hard way that success requires more than just opening stores and selling affordable clothes. Retail is constantly evolving, and brands that don’t change with the times risk going the way of Papaya.
