Preppy clothing retailer J. Crew filed for bankruptcy today, the first national clothing chain to start Chapter 11 proceedings during the coronavirus pandemic, the company announced.
J. Crew’s bankruptcy filing will allow the struggling retailer — which also owns the Madewell chain — to convert about $1.65 billion of its debt into equity, according to the filing. It also got $400 million in financing from its lenders Anchorage Capital Group, GSO Capital Partners and Davidson Kempner Capital Management to continue its operations during the Chapter 11 proceedings, the company announced.
“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,” Jan Singer, the CEO of J. Crew, said 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.”
J. Crew, which opened its first store in the South Street Seaport in 1983, has been struggling in recent years with mushrooming debt and declining sales before the coronavirus pandemic forced it to close all of its 182 J. Crew shops, 170 outlets and 140 Madewell stores in March.
The coronavirus has left most retailers in the country unable to keep their doors open and dried up their sales. In March, retail sales fell a record 8.7 percent in the United States but most expect April’s numbers to be even worse since many stores didn’t fully shutter until late March. To try and survive, many have laid off or furloughed staff and cut executives’ salaries.
Experts previously told Commercial Observer that the pandemic will quicken the death of many retailers already cash-strapped, with chains like Brooks Brothers and J.C. Penney reportedly weighing Chapter 11 filings or looking for buyers.
“Anybody that was on thin ice, so to speak, before the pandemic is going to either file for bankruptcy or close,” James Famularo, the president of Meridian Retail Leasing previously told CO. “If you were having a difficult time before the closures and COVID-19, I can’t see how you operate.”
J. Crew has a massive $1.7 billion debt load due to its 2011 leveraged buyout from private equity firms TPG Capital and Leonard Green & Partners, the New York Times reported. The retailer planned to pay that amount down after it took subsidiary Madewell public this year, but the initial public offering was scrapped in March after the coronavirus pandemic tanked the stock market, the Wall Street Journal reported.
While it was struggling before the coronavirus, J. Crew was seeing some positive signs. It generated $1.5 million in profits for the fiscal year that ended on Feb. 1, a reversal from the $74.4 million in losses it posted the previous year, the Journal reported. But the company’s high debt load along with its large payments for loans due in 2021 that it took out after it executed a complex restructuring deal outside of bankruptcy in 2017 have hampered it.
J. Crew might be the first national retailer to file for bankruptcy in the wake of the coronavirus, but others aren’t far behind. Luxury chain Neiman Marcus is prepping a filing that could reportedly come this month.