(AP/CBS) -- Struggling fashion brand J.Crew has filed for bankruptcy protection, the first major retailer to do so since the coronavirus pandemic forced most stores across the United States to close their doors.
More retail bankruptcies are expected in coming weeks, with Neiman Marcus and J.C. Penney also facing problems. Gap Inc. has warned it is running out of cash and is looking for an infusion.
Thousands of retail stores across the country remain closed, though some states have begun staggered restarts of their economies.
J.Crew, like a number of major retailers, was already in trouble before the pandemic. It had grown from a preppy 1990s fashion staple to an "it" brand worn by former First Lady Michelle Obama and featured at New York Fashion Week. But at some point in recent years, its fashion choices began landing with a clunk in the highly competitive retail sector.
Clothes will still be available online and the company says it will reopen stores when it's safe to do so, but industry analysts are skeptical about a second act.
Neil Saunders, managing director of GlobalData Retail, called the company's $1.7 billion in long-term debt "crippling."
"Before Chapter 11, J.Crew was on a slow march to ruin," Saunders said. "This process gives the company a chance to survive. However, that survival is not just dependent on reduced debt; it requires a reinvention of the J.Crew brand."
Saunders called J.Crew fashion "samey" and believes people won't pay full price for "boring" clothes.
J.Crew's roots date back to 1947, when Mitchell Cinader and Saul Charles founded Popular Merchandise Inc., which sold low-priced women's clothing. It was renamed J.Crew in 1983 and retooled as a preppy catalog to compete with those published by Lands' End and L.L Bean.
In the 1990s, new stores popped up across the country. Mickey Drexler, who had spearheaded Gap's explosive expansion, joined in 2002 as chairman and CEO and catapulted J.Crew into a high-tier player.
Obama elevated the brand even further during her eight years at the White House, favoring casual pieces like cardigans and slim skirts. In 2011, J.Crew became the first mass fashion brand to show its designs at New York Fashion Week.
But, like many other retailers, J.Crew fell victim to seismic changes in what customers are buying and how they're buying it. In the face of the pandemic, the most vulnerable have quickly lost the ability to pay bills and are seeking relief from creditors.
March sales at U.S. stores and restaurants had their most severe plunge since 1992, when record-keeping started. Clothing sales fell more than 50%. And that's probably not the worst of it. The U.S. Commerce Department reports retail sales figures for April next week. That report will reveal the full brunt of the pandemic because most stores were closed for the entire month.
Consumers drive 70% of the U.S. economy, meaning the abrupt store closures threaten the country's overall economic health. Hundreds of thousands of retail workers have been furloughed, meaning they're probably not participating in the economy in any significant way.
J.Crew said Monday that lenders have agreed to convert $1.65 billion of its debt into equity. It's also secured commitments for financing of $400 million from existing lenders Anchorage Capital Group, L.L.C., GSO Capital Partners and Davidson Kempner Capital Management LP, among others.
The company was acquired by TPG Capital and Leonard Green & Partners for $3 billion in 2011.
In its last full year of operations, J.Crew generated $2.5 billion in sales, a 2% increase from the year before.
J.Crew had planned to spin off its successful Madewell division as a public company and use the proceeds to pay down its debt. The company said Monday that Madewell will remain part of J.Crew Group Inc.
There were 193 J.Crew stores, 172 J.Crew Factory outlets and 132 Madewell locations as of Feb. 1.
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