J Crew, fashion group whose “preppy” style was made world famous by former first lady Michelle Obama, has filed for bankruptcy protection, becoming the first major US retailer to be pushed over the edge by the coronavirus pandemic.
The private equity-backed company said on Monday that its owner Chinos Holdings had filed for Chapter 11 relief as the retail sector struggles to contend with widespread closures brought in to stem the spread of Covid-19.
Well before the outbreak, however, J Crew had fallen out of favour with American consumers following a series of design mis-steps in recent years. The company also carried a heavy debt load — a legacy in part of its 2011 buyout by TPG Capital and Leonard Green & Partners — which inhibited its ability to take on rivals including lower-priced Hennes & Mauritz and Zara in the highly competitive sector.
The shock sent by coronavirus through the industry left it unable to continue as a going concern. As part of the restructuring process, J Crew said it had reached a deal with its lenders to convert $1.65bn worth of debt into equity.
The New York-based company said it had secured commitments for a debtor-in-possession financing facility of $400m to help it through the bankruptcy. It will retain its Madewell denim brand, which remains popular among young female shoppers, as part of the arrangement.
“This agreement with our lenders represents a critical milestone in the ongoing process to transform our business with the goal of driving long-term, sustainable growth for J Crew and further enhancing Madewell’s growth momentum,” said Jan Singer, chief executive of the group.
The global retail sector has been among the hardest hit by the coronavirus lockdowns, which have forced the closure of hundreds of thousands of outlets.
Restructuring bankers are anticipating more US retail bankruptcy filings in the weeks ahead. Debt-laden, mall-based and department store chains are under particular pressure. Both Neiman Marcus and JCPenney have missed bond payments in recent days.
Lockdowns across the US have forced the closure of hundreds of thousands of outlets and the National Retail Federation has suggested that $430bn in industry revenues could evaporate over the course of the second quarter.
J Crew’s roots are as a door-to-door clothing business, Popular Club Plan, that began in 1947. The J Crew brand was not developed until 1983 by Arthur Cinader, son of the original founder, and Emily Woods, Arthur’s daughter.
First known as a clothing catalogue business, J Crew went on to build
a bricks-and-mortar presence with an Americana-inspired range that was more affordable than Ralph Lauren.
Mickey Drexler, the US fashion retail personality, took charge in 2003
and repositioned J Crew as a more upmarket brand. He also established
J Crew was embraced by celebrities including Mrs Obama, who
wore a J Crew cardigan and pencil skirt on her first official visit
to London in 2009.
Yet the brand, with its cashmere tees and seersucker shirts, has
increasingly struggled to stay relevant to modern shoppers. Fast-
fashion rivals mimicked the look at lower prices and the rise of
Amazon added to the pressure. Mr Drexler departed in 2017.