Arkansas Democrat-Gazette

Financiall­y troubled pre-virus, J. Crew files for bankruptcy


NEW YORK — J. Crew, the mass-market clothing company whose preppywith-a-twist products were worn by Michelle Obama and appeared at New York Fashion Week, filed for bankruptcy protection Monday.

More retail bankruptci­es are expected in coming weeks, with Neiman Marcus and J.C. Penney also facing problems. Gap Inc. has warned it is running out of cash and is looking for an infusion.

Thousands of retail stores across the country remain closed, though some states have begun staggered restarts of their economies.

J. Crew, like a number of major retailers, was already in trouble before the pandemic. It had grown from a preppy 1990s fashion staple to an “it” brand worn by the former first lady and featured at New York Fashion Week. But at some point in recent years, its fashion choices began landing with a clunk in the highly competitiv­e retail sector.

Clothes will still be available online and the company says it will reopen stores when it’s safe to do so, but industry analysts are skeptical about a second act.

Gift cards and returns and exchanges would not be affected, the company said in a message to customers, adding that it planned to serve shoppers “for years to come.”

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.”

Saunders called J.Crew fashion “samey” and believes people won’t pay full price for “boring” clothes.

J.Crew’s roots date back to 1947, when Mitchell Cinader and Saul Charles founded Popular Merchandis­e Inc., which sold low-priced women’s clothing. It was renamed J.Crew in 1983 and retooled as a preppy catalog to compete with those published by Lands’ End and L.L Bean.

In the 1990s, new stores popped up across the country. Mickey Drexler, who had spearheade­d Gap’s explosive expansion, joined in 2002 as chairman and chief executive officer and catapulted J.Crew into a high-tier player.

Obama elevated the brand even further during her eight years at the White House, favoring casual pieces like cardigans and slim skirts. In 2011, J.Crew became the first mass fashion brand to show its designs at New York Fashion Week.

But, like many other retailers, J.Crew fell victim to seismic changes in what customers are buying and how they’re buying it. In the face of the pandemic, the most vulnerable have quickly lost the ability to pay bills and are seeking relief from creditors.

J.Crew said Monday that lenders have agreed to convert $1.65 billion of its debt into equity. It’s also secured commitment­s for financing of $400 million from existing lenders Anchorage Capital Group, L.L.C., GSO Capital Partners and Davidson Kempner Capital Management LP, among others.

The company was acquired by TPG Capital and Leonard Green & Partners for $3 billion in 2011.

In its last full year of operations, J.Crew generated $2.5 billion in sales, a 2% increase from the year before.

J.Crew had planned to spin off its successful Madewell division as a public company and use the proceeds to pay down its debt. The company said Monday that Madewell will remain part of J.Crew Group Inc.

There were 193 J.Crew stores, 172 J.Crew Factory outlets and 132 Madewell locations as of Feb. 1.

March sales at U.S. stores and restaurant­s had their most severe plunge since 1992, when record-keeping started. Clothing sales fell more than 50%. And that’s probably not the worst of it. The U.S. Commerce Department reports retail sales figures for April next week. That report will reveal the full brunt of the pandemic because most stores were closed for the entire month.

Consumers drive 70% of the U.S. economy, meaning the abrupt store closures threaten the country’s overall economic health. Hundreds of thousands of retail workers have been furloughed, meaning they’re probably not participat­ing in the economy in any significan­t way.

Now the question is whether the upheaval of the retail industry — which predates the pandemic, with the collapse of Barneys New York late last year — will continue.

“The companies going into bankruptcy, for the most part, were companies that were struggling before covid — we have not seen true covid-only bankruptci­es,” said James Van Horn, a partner at the law firm Barnes & Thornburg and a specialist in retail bankruptcy.

However, he added, “depending on how the current situation continues, that may change.”

 ?? (AP/Andrew Harnik) ?? A woman walks past a boarded-up J. Crew storefront in Washington last week.
(AP/Andrew Harnik) A woman walks past a boarded-up J. Crew storefront in Washington last week.

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