Clothing retailer J Crew comes apart at the seams
J Crew Group filed for bankruptcy protection on Monday with a plan to hand over control to lenders, adding to a list of brick-and-mortar retailers pushed to the brink by widespread store closures in response to the pandemic.
The New York-based chain, known for preppy clothing at times worn by former first lady Michelle Obama, filed for bankruptcy in a Virginia federal court with an agreement to eliminate $1.65bn of debt in exchange for ceding ownership to creditors.
J Crew is the first high-profile retailer to seek bankruptcy protection since the coronavirus spread across the globe, resulting in lockdowns that closed nonessential trade.
It is likely not to be the last. Department store chains Neiman Marcus and JCPenney are contemplating bankruptcy filings amid the crisis.
Anchorage Capital, Blackstone’s GSO Capital Partners and Davidson Kempner Capital Management hold significant portions of J Crew’s senior debt and are in line to take control of the company. They are also providing about $400m of fresh financing to aid J Crew’s operations while it navigates chapter 11 bankruptcy proceedings, the company said in a statement.
In addition to cancelling debt, J Crew plans to permanently close some stores, though the final number has not yet been determined, a person familiar with the matter said.
The virus outbreak forced the company to temporarily close its nearly 500 J Crew, J Crew Factory and Madewell stores. In addition, the economic fallout and market turmoil stemming from the public health crisis resulted in the company shelving plans for an initial public offering (IPO) of its Madewell business. Madewell will remain part of J Crew Group, and Libby Wadle will continue in her role as CEO of Madewell, the company added.
J Crew had planned to use proceeds from the IPO to reduce its debt rather than use bankruptcy to address its strained finances, the person familiar with the matter said.
Before the pandemic, J Crew was already struggling, along with other traditional brick-andmortar retailers to compete amid a consumer shift to online shopping. It also suffered after a strategic misstep of raising prices that turned off some shoppers. Talks in 2014 to sell J Crew to Japan’s Fast Retailing, the owner of the Uniqlo apparel chain, fell apart.
J Crew was taken private in 2011 by TPG and Leonard Green & Partners in a roughly $3bn leveraged buyout, and their investments are now expected to be wiped out, according to the person familiar with the matter.
The retailer avoided bankruptcy in 2017 in a deal with creditors that reduced total debt and pushed out due dates on obligations. But its struggles continued.
Millard “Mickey” S Drexler, a long-time leader of the chain known for his fashion acumen who also at one point helmed Gap, conceded he misjudged how technological developments would alter the retail landscape. He stepped aside as J Crew’s CEO in 2017, and in 2019 relinquished his seat as board chair.
J Crew listed both assets and liabilities in the range of $1bn$10bn in the voluntary chapter 11 document.