J. Crew becomes the 1st major retailer to file for bankruptcy — but its struggles are pre-pandemic
What is 'Chambray' and why is it $78?... J.Crew, the purveyor of breathable blazers, slim-fit khakis, and pastel-colored cableknit sweaters, has officially filed for bankruptcy — it's the first big retail victim of the corona-conomy, but its issues go waaay back....
- J. Crew was public until 2011, when 3 private equity firms took it private by borrowing almost $3B (aka, leveraged buyout). J.Crew got saddled with this massive debt. Then it got worse....
- In 2015, J.Crew's formerly fresh/innovative style began losing relevance as tastes shifted. It got stuck in an awkward spot: too expensive to be fast-fashion (like Zara), but not desirable enough to be splurged on as a higher-end brand.
- Now it's stuck with almost $1.7B in debt. The bankruptcy filing will allow it to stay in business and sell online (until stores can reopen), all while loading your inbox with 60% off sale emails.
You're not having deja-vu... J.Crew narrowly avoided bankruptcy in 2017. Then it tried to spin off its faster-growing Madewell brand into a public company this year so it could raise $$$ to pay back its boatload of debt. But that IPO never got a chance to put on its NYSE blazer (because, coronavirus).
Corona-conomy didn’t cause this bankruptcy — it accelerated it... For almost a decade, J. Crew has been saddled with massive debt that only grew worse as its popularity diminished. Now it gets an expensive "fresh start" under Chapter 11 bankruptcy.
- Bankruptcy doesn't mean J.Crew is finished — it means it can't pay back its debts. Now it gets time to potentially restructure and reduce its debt load, if the judge agrees.
- TBD if it will survive longer-term Even with a restructuring, J.Crew isn't out of the New England woods just yet. It'll eventually need to pay back debts under the new plan — but it won't be able to do that unless it transforms its struggling brand reputation.
- FYI it's sadly gone through 4 CEOs in 2 years to figure all this out.