J.crew files for Chapter 11
Company seeks bankruptcy protection
Fashion retailer J.crew’s parent company filed for Chapter 11 bankruptcy protection Monday, becoming the first major retailer to do so amid the coronavirus pandemic.
J.crew was on weak footing before the pandemic undermined its turnaround plans, having racked up an unsustainable amount of debt from a private-equity buyout deal in 2011. COVID-19 plunged the company deeper into crisis mode as it temporarily closed its stores.
As of Monday, the company had 181 J.crew retail stores, 140 Madewell locations and 170 factory stores in addition to its websites. The retailer had about 13,000 employees before the pandemic began.
The company, which leases all of its stores, disclosed in a court filing that it had hired a real estate consultancy and liquidator to help it evaluate its leases and negotiate rent relief. Permanent store closings are possible.
“If certain accommodations with landlords are not achieved, the Debtors likely will reject certain burdensome leases and close the related stores,” Michael Nicholson, president of J.crew parent company Chinos Holdings, said in a court filing.
The debt hurt the company’s ability to deal with the same challenges its competitors are facing, including declining mall foot traffic, digital threats and fast-fashion alternatives. J.crew has the sixth-most debt among distressed retailers, according to Moody’s Investor Service.
The company’s plan to spin off its promising women’s apparel business Madewell in 2020 was supposed to help the company pay down some of its debt. But that deal apparently faltered when the pandemic forced J. Crew and many other retailers to temporarily close stores.
J.crew said Monday that it had canceled plans to spin off Madewell.
Instead, the company said it has reached a deal to convert $1.65 billion in debt to equity.
“As we look to reopen our stores as quickly and safely as possible, this comprehensive financial restructuring should enable our business and brands to thrive for years to come,” J.crew Group CEO Jan Singer said in a statement.
But industry analysts are skeptical about a second act.
Neil Saunders, managing director of Globaldata Retail, called the company’s $1.7 billion in long-term debt “crippling.”
“Before Chapter 11, J.crew was on a slow march to ruin,” Saunders said. “This process gives the company a chance to survive. However, that survival is not just dependent on reduced debt; it requires a reinvention of the J.crew brand.”
Some states have lifted or eased restrictions linked to coronavirus, prompting some businesses to reopen. Macy’s said it would open 68 stores on Monday in states that have eased restrictions.
J.crew traces its roots to 1983, when it began selling clothes. The company went public and acquired Madewell in 2006 and expanded internationally in 2011.