Retail

J.Crew Won't Be Last Retail Bankruptcy Amid Pandemic

going out of business sign

J.Crew’s bankruptcy declaration on Monday (May 4) citing the devastating impact on sales by the coronavirus pandemic could be the first of a long line of big-name retailers to seek protection.

The retailer made its filing in the U.S. Bankruptcy Court in Richmond, Va. The company revealed it has a deal to remove $1.65 billion in debt in exchange for giving ownership to those who are owed funds.

While J.Crew is the first retailer to file for Chapter 11 protection in the wake of COVID-19, analysts say it won’t be the last.

More are expected in coming weeks as most of the nation’s stores remain shuttered under orders from governors. Department store chains Neiman Marcus Group and JCPenney are contemplating bankruptcy filings amid the crisis, Reuters previously reported.

Some states, like Texas, have begun a staggered reopening, but it’s unclear whether customer response will be robust enough to make physical stores profitable.

A PYMNTS survey found while some shoppers may long to visit the mall, only 4 percent of those who said they “really missed it” see it as the major reason they’d like to restart their activities.

It appears most consumers have filled the shopping gap by making purchases online. Among those who are shopping more online, just 33 percent said they will return to brick-and-mortar stores to shop when they reopen. Of those shoppers who preferred in-store shopping to online, only 40 percent say they will resume their normal shopping activities when those stores reopen, the study found.

J Crew’s filing raises questions about whether bankruptcy is a good option for retailers with brick-and-mortar locations — and whether pre-crisis weakness guarantee post-crisis financial peril.

“The companies with the thinnest margins are the most vulnerable,” Hugh Ray, a bankruptcy attorney for the Dallas-based law firm McKool Smith told the Wall Street Journal last week. “The bread and butter for bankruptcy lawyers is restaurants, grocery stores, and automobile businesses with margins that are too thin to sustain much of an interruption.”

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