BCBG Max Azria Group LLC, whose form-fitting party dresses have been worn by celebrities Selena Gomez, Drew Barrymore and others, is making preparations to file for bankruptcy as soon as next week, people familiar with the matter said on Friday.

The fashion house is the latest casualty in the struggling U.S. retail sector, as shoppers abandon malls in favour of internet shopping. BCBG has already informed mall owners of its plans to shutter most of its approximately 200 U.S. stores.

BCBG is working with its financial and legal advisers to prepare the bankruptcy filing, the people said, asking not to be identified because the plans are confidential. It is possible that some companies, including brand licensing firms, may seek to buy BCBG's assets in bankruptcy, the people added.

BCBG declined comment. Its owner, investment firm Guggenheim Partners, did not respond to requests for comment.
Competing speciality retailers, including The Limited and American Apparel, have also filed for bankruptcy in recent months and are closing down their stores.

In a call with landlords in January, a recording of which was heard by Reuters, BCBG said it preferred an alternative to bankruptcy as it looked to slash its secured debt load of $485 million (£389.09 million ). However, BCBG is behind on its rent, and bankruptcy would have the advantage of shielding it from legal action by landlords, which have been put under pressure by a wave of retail bankruptcies and shuttered stores.

The upcoming bankruptcy is a fall from grace for BCBG, an acronym for the French phrase "bon chic, bon genre". Reuters reported in 2013 that it was exploring a potential sale that could have fetched as much as $1 billion.
In 2015, BCBG restructured its debt and received a $135 million cash infusion from investors including affiliates of Guggenheim.

BCBG was founded by Tunisian fashion designer Max Azria in 1989 and grew through its retail shops and distribution in department stores including Saks Fifth Avenue and Bloomingdale's. It also acquired Herve Leger, maker of skin-tight dresses, and started a lower-cost line called BCBGeneration. Azria is no longer at the helm of the company.

In the call with landlords last month, one of BCBG's advisers said the company's retail store business declined by 20 percent over the past three years. The company reported consolidated net sales of just over $600 million in the 12 months to December, according to the call.

Retail accounted for 71 percent of its revenue, while wholesale accounted for 18 percent, according to the call. The percentage share for licensing and e-commerce sales were in the single digits.