J.Crew files for bankruptcy protection amid coronavirus pandemic
Retailer neither first nor last to seek protection during COVID-19 crisis
The owner of J.Crew is filing for bankruptcy protection, the first major retailer to do so since the COVID-19 pandemic began in the United States.
More bankruptcies across the retail sector are expected in the coming weeks with most stores still closed, though some states have begun a staggered restart to their economies.
March sales at stores and restaurants had their most severe plunge on records dating back to 1992. Clothing sales fell more than 50 per cent that month and, in the pandemic timeline, those may have been the good days.
The U.S. Commerce Department reports retail sales figures for April next week. That report will reveal the full brunt of the coronavirus crisis because by the beginning of that month, the doors of almost every retailer had been ordered shut.
The abrupt closure of stores threatens the overall economic health of the U.S. because consumers drive 70 per cent of economic activity in the country. Tens of thousands of retail workers have been furloughed, meaning they're not likely participating in the economy in any significant way.
Parts of the retail sector were already under duress before the arrival of COVID-19 due to seismic changes in what is bought and how. The most vulnerable have quickly lost the ability to pay bills and, like J.Crew, are seeking relief from creditors.
J.Crew said Monday that lenders have agreed to convert $1.65 billion US of its debt into equity. It's also secured commitments for financing of $400 million from existing lenders Anchorage Capital Group LLC, GSO Capital Partners and Davidson Kempner Capital Management LP, among others.
J.Crew was one of the companies already in trouble before the pandemic and laden with debt.
Operations at J.Crew will continue throughout a restructuring, and clothing will still be available to purchase online.
The company said Monday that it anticipates its stores will reopen when it's safe to do so.
Retail veteran Mickey Drexler led J.Crew for more than a decade when it became a coveted fashion brand. But the chain appeared to lose its way at some point, and Drexler severed his last ties with the company in January 2019.
Not the first, not the last
J.Crew is not the first to seek protection during the coronavirus outbreak, and no one expects it to be the last.
J.C. Penney and Neiman Marcus are expected to follow J.Crew. Jeans maker True Religion Apparel Inc. filed for bankruptcy protection last month.
In its last full year of operations, J.Crew generated $2.5 billion in sales, a two per cent increase from the year before.
J.Crew had aimed to spin off its successful Madewell division as a public company and use the proceeds to pay down its debt. The company said Monday that Madewell will remain part of J.Crew Group Inc.
There were 193 J.Crew stores, 172 J.Crew factory outlets and 132 Madewell locations as of Feb. 1.