J. Crew Group Inc announced on 4 May that it had filed for Chapter 11 bankruptcy through its parent company Chinos Holdings in the federal court in the District of Eastern Virginia. According to the retailer, it will continue operating online and plans to reopen its stores after the self-isolation restrictions are lifted.
The company has debts of $1.7 billion, according to February estimates. Filing for bankruptcy would allow the retailer to restructure its spending, while handing over control of the company to its top lenders, who will convert $1.65 billion of debt into equity. An additional $400 million is believed to be secured by hedge funds including Anchorage Capital Group and Davidson Kempner Capital Management.
The group has been experiencing financial difficulties for some time, amid uncertain marketing strategies and falling sales, the New York Times revealed. In 2017, J. Crew narrowly managed to escape default following a leveraged buyout six years earlier by two private equity companies and its current owners TPG Capital and Leonard Green & Partners. However, the ongoing coronavirus crisis and falling sales in the apparel industry have exacerbated the problems the company has been experiencing for the last couple of years.
“The companies going into bankruptcy, for the most part, were companies that were struggling before Covid — we have not seen true Covid-only bankruptcies”, a specialist in retail bankruptcy from the law firm Barnes & Thornburg, James Van Horn, told the New York Times.
The company currently operates 182 J. Crew stores and 170 factory outlets, as well as 140 shops of its younger and arguably more successful sister brand Madewell, according to March data. However, during the coronavirus lockdown, the retailer has been operating mainly through online stores, with the business experiencing a dramatic halving of its sales of clothing and accessories at the start of spring.