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May 4, 2020

US Business | Retail: J. Crew files for bankruptcy, the first national retail casualty of the coronavirus pandemic

Abha Bhattarai



J. Crew Group, the apparel chain known for its preppy basics, filed for bankruptcy protection Monday, becoming the first national retailer to do so during the coronavirus pandemic.
The 73-year-old New York-based retailer was struggling to stay relevant long before the outbreak forced it to temporarily shutter all 492 of its J. Crew and Madewell stores. Analysts say a series of missteps, in both fashion and finance, have left the onetime mall darling with slipping sales and nearly $2 billion in debt.
Much of that debt stems from its 2011 acquisition by the private-equity firms TPG Capital and Leonard Green & Partners in a leveraged buyout.
Under the terms of its bankruptcy, J. Crew’s lenders will convert $1.65 billion of the company’s debt into equity. It also reached other agreements for financing that the company expects will allow it to continue to operate while going through Chapter 11.
“This agreement with our lenders represents a critical milestone in the ongoing process to transform our business with the goal of driving long-term, sustainable growth for J. Crew and further enhancing Madewell’s growth momentum,” said chief executive officer Jan Singer in a statement. “Throughout this process, we will continue to provide our customers with the exceptional merchandise and service they expect from us, and we will continue all day-to-day operations, albeit under these extraordinary covid-19-related circumstances."
The company, which posted a list of frequency asked questions about its bankruptcy, said it does not expect any immediate changes to customers’ experiences shopping at the store.
“J. Crew has an enormous pile of debt. It’s been desperate to offload some of that burden, even before this crisis,” said Neil Saunders, managing director of GlobalData Retail.
J. Crew had planned to spin off its smaller, but more successful, Madewell brand into a stand-alone company. In a September filing, the company said it expected to raise as much as $970 million by taking it public. But it scrapped the idea in March following a “strong” fourth quarter — its first profit after seven straight quarters of losses. Bloomberg reported that J. Crew and its creditors couldn’t agree on final terms.
The fizzling of the initial public offering, combined with the financial strain of the pandemic, made bankruptcy all but inevitable, analysts said. The company had $2.5 billion in revenue last year, down from $2.6 million five years ago. J. Crew’s sales fell 4 percent to $1.7 million, while Madewell’s sales rose 15 percent to $602 million.
“J. Crew has been on the bubble for years,” said Paula Rosenblum, managing partner at Retail Systems Research in Miami. The best thing about Chapter 11 is you get to get rid of stores that you don’t need or want anymore. It’s the only way to break a lease."
The mall-based chain got its start in 1947, as Popular Merchandise, a catalog-based purveyor of affordable women’s apparel. It changed its name to J. Crew in 1983 and opened its first store, in Manhattan, in 1989. Locations in San Francisco, the Boston suburbs and Dallas quickly followed, and by the early 1990s, the company was bringing in roughly $200 million a year in revenue.
“J. Crew displays the understated cool of a winner,” Texas Monthly said in a 1992 profile of the company. “Seemingly, lots and lots of people want to live the J. Crew life, which means that they want to buy classic American wear — ‘broken-in chinos,’ ‘vintage workshirts,’ or the ‘J. Crew barn jacket,’ in company parlance — at reasonable prices.”
The brand was an American mainstay for years. Its bright colors and classic silhouettes won over a legion of celebrity fans, including Michelle Obama and Reese Witherspoon.
But things began going south shortly after the company’s 2011 leveraged buyout. Analysts say clothing quality began to deteriorate, and loyalists complained that the offerings had become dull. There was more competition too, as direct-to-consumer brands like MM. LaFleur and Bonobos gained ground. By 2014, sales were on a downward slope, with the company reporting a $607.8 million loss in the third quarter. The ratings agency Moody’s downgraded J. Crew, cited “weak execution in a challenging apparel retail environment.”
The company’s problems continued to Mount. Jenna Lyons, the creative director widely credited with bringing whimsy to the brand, left in 2017. In early 2019, longtime chief executive Mickey Drexler stepped down as well.
“J. Crew’s products have really suffered,” Saunders said. “There have been mounting problems with basic design and aesthetics. They’re selling the same T-shirts and ballet slippers as everybody else, but at higher price points."
J. Crew has tried to stay competitive through heavy discounting, chipping away at the company’s profit margins. Its website was recently offering an extra 40 percent off sale items, and as much as 60 percent off “dressy-ish” clothing for men, women and children.
“Blue skies ahead,” it said.

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