• by Thom Forbes  @tforbes, May 4, 2020

Chinos Holdings, the parent company of J.Crew and Madewell, filed for Chapter 11 reorganization in the U.S. Bankruptcy Court for the Eastern District of Virginia this morning. The company says merchandise pricing and offerings will not be affected by the Chapter 11 process and that the businesses will remain fully operational.

“The New York-based chain, known for preppy clothing at times worn by former first lady Michelle Obama, filed for bankruptcy … with an agreement to eliminate its roughly $1.65 billion of debt in exchange for ceding ownership to creditors. It is the first big retailer to fail during the pandemic,” Reuters’ Mike Spector writes.

“Anchorage Capital Group, Blackstone Group Inc.’s GSO Capital Partners and Davidson Kempner Capital Management hold significant portions of J.Crew’s senior debt and are in line to take control of the company. They are also providing about $400 million of fresh financing to aid J.Crew’s operations, while it navigates Chapter 11 bankruptcy proceedings, the company said in a statement,” Spector continues.

“The company had been in negotiations with lenders on how to handle its debts for weeks and made the decision after its board conferred Sunday evening, according to two people with knowledge of the situation, who spoke on the condition of anonymity because discussions were confidential,” Vanessa Friedman, Sapna Maheshwari and Michael J. de la Merced write  for The New York Times.

“The pandemic has been disastrous for the already weakened retail industry. In March, sales of clothing and accessories fell by more than half. The numbers for April are expected to be worse, because many stores were open for at least some of March (e-commerce, a relatively small contributor to total sales for most store chains, is not enough to make up for the closures),” they add.

“According to [Business of Fashion] and McKinsey & Company's coronavirus update to the State of Fashion Report, more than 80% of fashion firms will find themselves in financial distress if lockdowns last longer than two months,” BoF.com’s Sarah Kent writes.

“Department stores including Neiman Marcus, Lord & Taylor and J.C. Penney are all weighing bankruptcy protection. Smaller retailers, like True Religion, have already gone to the wall. Most of the companies’ problems predate the current pandemic, but the near-total shutdown of physical retail for the last month has smashed many turnaround efforts,” Kent adds.

“Crew chief executive Jan Singer described the [bankruptcy] move as a ‘comprehensive financial restructuring’ aimed at allowing the business ‘to thrive for years to come,’” the BBC reports.

“Throughout this process, we will continue to provide our customers with the exceptional merchandise and service they expect from us, and we will continue all day-to-day operations, albeit under these extraordinary COVID-19-related circumstances,” she adds.

“It wasn’t all that long ago that J.Crew had a special place in fashion -- a niche between luxury and mainstream, a blend of whimsy, preppy and classic appeal, and never too trendy. The aura was amplified by a cadre of colorful creatives led for about a decade and a half by Millard ‘Mickey’ Drexler, who founded Madewell and Old Navy, and designers Jenna Lyons and Frank Muytjens,” writes  David Moin for Women’s Wear Daily.

But that was then, before Drexler admitted that it took too long for him to realize how much tech and social media had changed his business. There were other issues, too, of course.

“Things began going south shortly after the company’s 2011 leveraged buyout. Analysts say clothing quality began to deteriorate, and loyalists complained that the offerings had become dull. There was more competition too, as direct-to-consumer brands like MM. LaFleur and Bonobos gained ground. By 2014, sales were on a downward slope, with the company reporting a $607.8 million loss in the third quarter. The ratings agency Moody’s downgraded J.Crew, citing ‘weak execution in a challenging apparel retail environment,’” Abha Bhattarai writes  for The Washington Post.

“J.Crew’s products have really suffered. There have been mounting problems with basic design and aesthetics. They’re selling the same T-shirts and ballet slippers as everybody else, but at higher price points,” Neil Saunders, managing director of GlobalData Retail, tells Bhattarai.

“The company had counted on using the proceeds from the listing of its subsidiary Madewell to pay down some of its $1.7 billion debt, but the plan was scrapped in March as it became clear that no IPO was possible given the volatility of stock market as countries around the world were locking down in the face of the pandemic. J.Crew said Monday that Madewell will remain part of the group, and Libby Wadle will continue in her role as CEO of Madewell,” Martin Mou writes  for The Wall Street Journal.