The economic lockdown has caused havoc for North American clothing retailers.
Last month, Gap Inc.—which owns the Gap, Old Navy, and Banana Republic—announced that it's refusing to pay rent to its landlords.
This morning, the parent company of J. Crew Group Inc., Chinos Holdings, and some of its affiliates sought court protection under Chapter 11 of the U.S. Bankruptcy Code.
J. Crew Inc. has reached an agreement with its lenders to convert $165 billion of debt into equity.
It's the first major bankruptcy filing by a U.S. retailer since the COVID-19 pandemic was declared on March 11. And it comes as most stores are closed due to an economic lockdown designed to halt the spread of the novel coronavirus.
On May 2, J. Crew Inc. reported a US$78.8-million loss on revenues of US$2.54 billion for the recent fiscal year ending on February 1.
J. Crew has a store at 1088 Robson Street in Vancouver and a factory outlet at McArthur Glen Vancouver. Other stores have closed in recent years at the Pacific Centre and Park Royal malls.
When J. Crew first set up shop in Vancouver on Robson Street in 2012, Straight contributor Sarah Rowland wrote that the chain appealed to the "yacht-rock set to the indie-pop crowd".
The company also has stores at 110 Bloor Street West and 3401 Dufferin Street in Toronto.
J. Crew Group also operates Madewell, which is a U.S. chain of women's clothing stores.
"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," J. Crew Group CEO Jan Singer said in a company news release.
"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," Singer continued. "As we look to reopen our stores as quickly and safely as possible, this comprehensive financial restructuring should enable our business and brands to thrive for years to come."
Under Chapter 11, the debtor retains control of the business with the objective of repaying creditors more than they would receive if it were to be liquidated.
According to the CCIM Institute, unpaid rents are unsecured claims, putting them at the bottom of the list of any debts to be repaid.
"When a tenant files for bankruptcy, all collection actions against the tenant stop," wrote John A. Barclay on the CCIM website. "This includes unlawful detainers or other efforts to collect money.
"Filing bankruptcy creates an 'automatic stay,' which means that creditors cannot take any action against the debtor without court permission. However, the landlord can still pursue and collect back rent from any guarantors named under the lease, even while the tenant is in bankruptcy."