A lack of capital was putting the company at risk, according to a notice on the NZX.

The future of children's clothing company Pumpkin Patch is uncertain after it went into a trading halt.

The business was struggling with a lack of money and too much debt, according to a notice on the New Zealand Stock Exchange (NZX) from chairman Peter Schuyt​ and managing director Luke Bunt.

Banking arrangements meant Pumpkin Patch could keep its doors open, but there was some doubt over its future.

"Our ability to move forward from here is impacted by the lack of available capital for debt reduction and reinvestment. This represents a material risk to the ongoing viability of the business."

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After years of declining sales Pumpkin Patch has seen its market capitalisation dwindle to just $10.1 million from a valuation of $231m in 2013.

Its second-biggest shareholder is Jan Cameron, the co-founder of NZ adventure-wear retailer Kathmandu.

On Friday, Pumpkin Patch told shareholders that "substantial uncertainty" remained regarding its future and it would put forward proposals to its bank by October 31.

"Shareholders should note that it is highly unlikely that there is any residual value in the company's equity."

Early last year Pumpkin Patch put itself up for sale, but that sale did not proceed. The company instead planned a four-year turnaround program, which included store closures and focusing on online sales.

Reporting a deeper loss of $15.5 million for the year to July 31, 2016, Pumpkin Patch said it was at a "very early stage of its recovery journey" and "apparel retailing continues to be highly competitive and challenging."

It said declining sales were due to store closures, and a decline in its international wholesale business and northern hemisphere online business.

During the year the company closed 12 loss-making stores, mainly in Australia.

The rise of the New Zealand dollar against the Australian dollar was also a "major headwind for the business and if sustained represents a material risk to earnings."

A disappointed Wellington shareholder said it was a sad day because he had clothed his children in Pumpkin Patch gear for many years.

"I became a shareholder because they seemed to have a great investment story to tell as they expanded overseas. A few years ago it became obvious their strategy hadn't worked, and now I'm over $8000 out of pocket."﻿

Shareholders were advised in the statement that it was highly unlikely there was any residual value in the company's equity.

Pumpkin Patch expected to make some headway in the next few days and make an announcement to the market..

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The NZX statement said the company had tabled options to address capital constraints.

"Further work [on the options] coupled with discussions with the bank and certain key stakeholders had generated ongoing substantial uncertainty regarding the company's future."

Last month, Pumpkin Patch reported a 71 per cent bigger loss this year than last.

STRUGGLING FOR A LONG TIME

Children's clothing was a tough category in the global market, said First Retail Group managing director Chris Wilkinson.

Even some of the biggest operators were finding it tough and with little success as market dynamics changed and fast fashion moved in.

Cotton On Kids is set to open at Sylvia Park in Auckland this month, in line with a new store concept rollout.

"They have the size and buying power, which is why we are seeing the childrenswear landscape changing."

In Australia, where Pumpkin Patch has 12 stores, it faces competition from Baby Bunting, Australia's biggest baby goods chain.,

Baby Bunting has a dominant position in the Australian market, helped by the collapse of My Baby Warehouse, and plans to ramp up store opening there.

Another reason for Pumpkin Patch's decline in the sector was the growth of secondhand sales, Wilkinson said.

"Kids grow out of clothes quickly and are being sold on. When Pumpkin Patch started, Trade Me would not have been around."

He speculated the future of the company could be in the hands of a department store like David Jones. Otherwise there would not be many other options.

"David Jones just bought Australian men's fashion brand Politix and have been inquisitive about taking over other brands."

New Zealand tended to follow UK markets and in hindsight there was dark cloud on the horizon for some time, he said.

Morrisons found this out in 2011 when it pumped £170m into kids clothing, only to report a £164m writedown in its investment .

UK kids clothing chain Adams went to administration three times between 2006 and 2010 before closing the stores.

- Stuff, SMH