J.Crew Joins The Pandemic Bankruptcy Perp Walk

The great retail re-opening is now being called the “great resettling” by many observers and J.Crew is its latest victim. According to several sources the preppy retail chain has been negotiating with its lenders since it canceled plans to take its Madewell subsidiary public. Madewell sells women’s apparel online and through brick-and-mortar stores with an emphasis on casual denim. It had slashed prices by 60 percent online this week. According to The Wall Street Journal, J.Crew intended to use the Madewell initial public offering (IPO) to pay down part of its $1.7 billion debt. Those plans were scrapped as the coronavirus pandemic took hold in March.

A filing could come as soon as this weekend. Chino Holdings is J.Crew’s parent company. The company operated 182 J.Crew-branded stores, 140 Madewell stores and 170 factory stores as of March 2.

The potential filing again raises two issues. One: is bankruptcy as positive option for retailers with brick-and-mortar exposure? Two: does pre-crisis weakness guarantee post-crisis financial peril?

“The companies with the thinnest margins are the most vulnerable,” said Hugh Ray, a bankruptcy attorney for the Dallas-based law firm McKool Smith. “The bread and butter for bankruptcy lawyers is restaurants, grocery stores, and automobile businesses with margins that are too thin to sustain much of an interruption.”

Credit agencies have cut ratings for a number of retailers, which makes it harder to access government stimulus money.  Some of the nation’s weakest retailers that have not formally filed for bankruptcy, including J.Crew, Gap and JCPenney, have very few options.

“The question becomes how strong you were going into the crisis,” said Mickey Chadha, a senior credit officer at Moody’s. “A lot of retailers that were already weak are going to come out of this even weaker, if they come out at all.”

The J.Crew filing also spotlights other retailers that were in a weak position pre-crisis. Gap may well have to follow the parade of brick-and-mortar heavy retailers that have already filed for bankruptcy. Marker’s Rob Walker writes that the once iconic brand may fold because of COVID-19.

“A quick look at parent company Gap Inc.’s numbers for 2019 seem to show a brand that still holds massive retail clout, what with revenue over $16 billion and 3,900 stores, including Gap and other brands like Banana Republic, Old Navy and Athleta,” Walker says. “Even more recent numbers showed promise; on an April 9 investor call cited by Marker, the company said it started February with $1.7 billion in cash.”

Retailers are in a “radically different position” than they were months ago, says Jordan Elkind, vice president of product marketing at consumer data analytics firm Amperity. He declined to comment on Gap specifically, but continued, “We’ve been in scenario planning and war-room sessions where the calculus has flipped. Now it’s ‘If we were to only reopen 25 stores of the 300 we had, what would the top 25 be — or the top 50 or 100?’” Many of his firm’s clients, he said, “view this as a kind of reset.”