NEW YORK (AP) — The owner of J.Crew is filing for bankruptcy protection, the first major retailer to do so since the pandemic forced the closing of most stores in the United States.
More retail bankruptcies are expected in the coming weeks with the doors of thousands of stores still locked, though states have begun a staggered restart of 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% that month and it has grown worse.
The abrupt closure of stores threatens the overall health of the U.S. with consumers driving 70% of all economic activity in the country.
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 help from creditors.
J.Crew’s lenders agreed to convert $1.65 billion of its debt into equity. It’s also secured commitments for financing of $400 million from existing lenders Anchorage Capital Group, L.L.C., GSO Capital Partners and Davidson Kempner Capital Management LP, among others.
Subject to court approval, the so-called “debtor-in-possession” financing, combined with the company’s projected cash flows, is expected to support its operations during the restructuring process.
J.Crew was one of the chains in trouble before the pandemic and it was laden with debt. The company was acquired by TPG Capital and Leonard Green & Partners for $3 billion in 2011.
Retail veteran Mickey Drexler led J.Crew for more than a decade when it became a coveted fashion brand. Former First Lady Michelle Obama gave the brand even more prominence during her eight years at the White House when she was constantly sporting casual pieces like its popular cardigan and slim skirts.
But the chain appeared to lose its way and Drexler severed his last ties with the company in January 2019.
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.
In its last full year of operations, J.Crew generated $2.5 billion in sales, a 2% 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.