US specialty retailer J Crew has now filed for bankruptcy protection following the prolonged closure of its stores due to the coronavirus pandemic. The company is the first national US retailer to throw in the towel after the health crisis had forced the government to order the closure of major retail outlets to mitigate the spread of the disease.
J Crew announced on Monday that it had filed for Chapter 11 bankruptcy with the federal bankruptcy court in the Eastern District of Virginia. The company added that it has already negotiated with its lenders, which have agreed to convert its standing debt of around $1.65 billion into equity.
The company's chief executive officer, Jan Singer, added that it will be continuing its day-to-day operations and it expects to come out of bankruptcy soon. He added that the company will still be moving forward with the planned IPO for its Madewell denim brand after it comes out of bankruptcy.
Filing for bankruptcy doesn't necessarily mean the end of a company. In J Crew's case, it can use the proceedings to shed its debt and restructure its business to remove unprofitable operations with the guidance of a federal bankruptcy court.
However, liquidating its inventory and raising cash during the current health and economic crisis could be challenging for the company. Most of its potential buyers and investors are currently struggling to cope with the continued supply chain disruptions and the ongoing shelter-in-place orders and lockdowns in some states.
The company's bankruptcy filing has been taken by economists as a clear sign that the continued strain brought about by the pandemic is pushing retailers to their limits. Analysts from UBS have stated that additional retail store closures and the bankruptcy filing will likely accelerate in the coming quarters, even after the pandemic is placed under control.
Since its establishment in 1983, the retailer, which specializes in an assortment of men's wear, women's wear, accessories, and children's apparel, has grown to become one of the country's largest retail companies. The company rapidly increased its number of outlets after it was acquired by private equity firms Leonard Green & Partners and TPG Capital for $3 billion in 2011. The rapid expansion resulted in the company incurring massive debts on top of the $50 million it had owed prior to the acquisition. As of February this year, the company reported that its standing debts had exceeded $1.7 billion.
J Crew currently has more than 500 stores in the US and dozens more in countries such as the UK, France, and Canada. Since the start of the outbreak, all of its stores in the US have remained closed. Last year, the company reported that it had over 14,500 employees.
