J. Crew emerges from bankruptcy | Retail diving

UPDATE: September 11, 2020: After filing for Chapter 11 in May, J. Crew has officially emerged from bankruptcy and says it is “well positioned for long-term growth,” according to a press release from the clothing retailer on Thursday.

Lenders took control of the property after a federal bankruptcy court approved J. Crew’s plan to reorganize. The deal left investment firm Anchorage Capital Group as the retailer’s current majority owner. Kevin Ulrich, CEO of Anchorage, said in the release that his company sees “tremendous opportunity for growth and expansion for every brand,” which includes the J. Crew and Madewell banners.

Diving Brief:

  • J. Crew expects get out of chapter 11 early September after winning court approval of its reorganization plan this week.
  • The clothing seller’s plans turn $1.6 billion in debt into equity, putting lenders in charge of the business. It is also providing new debt capital in the form of $400 million in term loans and a $400 million asset-based exit facility..
  • “Confirmation of our reorganization plan is another important step in our journey to transform our business to drive long-term sustainable growth for J.Crew and advance Madewell’s growth momentum,” said Jan. Singer, CEO of J.Crew Group. in a report.

Overview of the dive:

J. Crew was the first major retailer to file for bankruptcy amid industry-wide disruption caused by the COVID-19 pandemic. While that may be an unfortunate designation, his journey through the Chapter 11 process has been relatively smooth and he now has a chance to firm up his business in an environment still full of quick change and uncertainty.

J. Crew is a case study not just for the COVID-19 crisis, but for much of the retail upheaval of the past four or so years. Burdened with debt from a private equity buyout, the iconic brand was in perpetual distress and near constant risk of default. This continued even after the execution of a debt agreement that resulted in legal action over the status of his intellectual property.

All that debt has only lowered sales of its namesake banner — a symptom of both general apparel issues as well as J. Crew’s own merchandising missteps. more difficult to turn around.

According to the company, there was light at the end of the tunnel as 2020 opened, a deal that would have removed debt from its balance sheet while building its fast-growing Madewell brand. But those plans fell apart following the chaos in financial markets this spring. The pandemic has also hurt the company itself. The company’s COO said in court documents at the start of Chapter 11 that J. Crew expected a $900 million drop in sales for the year due to the pandemic and the temporary closure of its 500 stores.

Highly indebted retailers like J. Crew, Neiman Marcus and JC Penney have been among the most financially vulnerable during the recession, but others that lack scale or cash cushions have also gone bankrupt or are in a much worse position. precarious than before the pandemic crisis.

J. Crew went broke with a plan, reorganized pretty quickly, and is now on the way out, with a chance to stabilize. Other retailers to drop off in the COVID era haven’t been so lucky. Pier 1 and Stage Stores, among others, were forced into liquidation after failing to find buyers. Stein Mart will probably follow them down this path. JC Penney is considering selling, but continues to push back deadlines and has been silent in recent weeks on auction progress. Neiman is close on a bankruptcy reorganization, but the process was fraught with pitfalls public drama and revelations about various stakeholders.

Bankruptcy can provide a second chance for retailers that have expanded their footprint and/or balance sheet. But the market, especially in apparel, remains highly competitive, ever-changing, and shaped by COVID-19 for the foreseeable future.

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