Fashion group J Crew pushed into bankruptcy by coronavirus
US retailer of preppy clothing was already under pressure from heavy debt load
J Crew, the retailer known for colourful cashmere, Breton-stripe tops and upbeat branding, has filed for bankruptcy protection, becoming the first major US retailer to be pushed over the edge by the coronavirus pandemic.
The private equity-backed company said on Monday that its parent Chinos Holdings had filed for Chapter 11 relief after lockdowns to contain the spread of Covid-19 left it unable to cope with its near $2bn debt burden.
Like other bricks-and-mortar clothing chains across the US, J Crew had been struggling well before the outbreak. The maker of cashmere T-shirts and seersucker shirts made a series of design mis-steps in recent years, although its Madewell denim brand has remained popular among young female shoppers.
J Crew produced revenues of $2.5bn last year, yet the company’s debt load — a legacy in part of its 2011 buyout by TPG Capital and Leonard Green & Partners — inhibited its ability to take on rivals, including lower-priced H&M and Zara.
Michael Nicholson, Chinos president, said coronavirus had caused “considerable financial strain” but added it had “only exacerbated” the chain’s existing problems. About 11,000 of the retailer’s 13,000 workers have already been furloughed.
The bankruptcy of J Crew, which has about 500 outlets, is the latest blow to the retail property market. The New York-based retailer warned in the filing that it would need to close stores permanently if it could not secure “accommodations” from landlords, and was seeking court approval for “streamlined” lease rejections.
Restructuring bankers expect the impact of the pandemic on the industry will lead to more US retail failures in the weeks ahead.
Debt-laden department store and mall-based chains are under particular pressure. Both Neiman Marcus and JCPenney have missed bond payments in recent weeks.
J Crew’s roots are as a door-to-door clothing business, Popular Club Plan, that began in 1947. The J Crew brand was not developed until 1983 by Arthur Cinader, son of the founder, and Emily Woods, Arthur’s daughter. Started as a clothing catalogue venture, J Crew opened its first store in Lower Manhattan in 1989 and went on to build a national bricks-and-mortar presence with an Americana-inspired range that was more affordable than Ralph Lauren. Mickey Drexler, the US fashion retail personality, took charge in 2003 and repositioned J Crew, making it more upmarket. He also built the Madewell denim brand.
J Crew was embraced by celebrities including former first lady Michelle Obama, who sported a cardigan and pencil skirt combo on her first official visit to London in 2009. International expansion began in 2011. Yet the brand has increasingly struggled to remain relevant to modern shoppers. Fast-fashion rivals mimicked the look at lower prices, and the rise of Amazon added to the pressure. Mr Drexler stood aside as chief executive in 2017.
The company had sought to reduce its debt load by floating the fast-growing Madewell brand late last year but was unable to complete the listing.
As part of the bankruptcy, J Crew has reached a deal with its lenders to convert $1.65bn worth of debt into equity. The company said it had secured commitments for a debtor-in-possession financing facility of $400m to help it through the bankruptcy.
Jan Singer, chief executive, said the arrangement would help produce “sustainable growth” for J Crew and enhance “Madewell’s growth momentum”.