LONDON, United Kingdom — J. Crew’s fall from fashion has been long and tortured, but the company’s benighted efforts to turnaround sluggish sales and manage a crippling debt load couldn’t stand up to the financial pressures of Covid-19. On Monday, the US retailer said that its parent company, Chinos Holdings, had filed for Chapter 11 protection in a US bankruptcy court.
J. Crew is the first major US retailer to succumb to the financial pressures caused by the pandemic, which has forced the closure of brick-and-mortar stores across America. It is unlikely to be the last. According to BoF and McKinsey & Company‘s coronavirus update to the State of Fashion Report, more than 80 percent of fashion firms will find themselves in financial distress if lockdowns last longer than two months.
Department stores including Neiman Marcus, Lord & Taylor and J.C. Penney are all weighing bankruptcy protection. Smaller retailers, like True Religion, have already gone to the wall. Most of the companies’ problems predate the current pandemic, but the near-total shutdown of physical retail for the last month has smashed many turnaround efforts.
At J. Crew, the company had been struggling to turnaround sluggish sales and a crushing debt burden, a hangover from a leveraged buyout by its private equity owners in 2011. Once considered an aspirational purchase, the preppy American brand, led by ‘Merchant Prince’ Mickey Drexler and championed by the likes of Michelle Obama, lost its cool in the mid-2010s and has not been able to regain its cultural credibility.
The company had planned to spin off fast-growing sister brand Madewell to help raise cash and reduce debt before the current crisis hit. For now, at least, Madewell will remain part of the J. Crew Group, the company said Monday. As part of its financial restructuring it has converted a substantial portion of its debt into equity and secured $400 million of new money.
A Chapter 11 bankruptcy will allow J. Crew to continue to operate, while cutting its debt level and closing weak stores to minimise costs. The company said its e-commerce business, which represents more than 50 percent of total revenue, is continuing as normal. Stores will reopen as health restrictions lift.
“This agreement with our lenders represents a critical milestone in the ongoing process to transform our business,” Chief Executive Jan Singer said in a statement.
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