Two months ago, Madewell was preparing for a split from J.Crew Group Inc. The fashion chain’s anticipated initial public offering had been in the works for several months as it continued to outshine its sister brand, and the spinoff was expected to raise $100 million for its parent company.
But on March 2, J.Crew Group opted to shelve the proposed IPO for Madewell amid an erratic stock market due to investor concerns over the coronavirus outbreak. As COVID-19 spread rapidly across the United States, the company was forced to temporarily shutter many of its J.Crew and Madewell stores, exacerbating its financial position and ultimately steering it to yesterday’s Chapter 11 bankruptcy filing.
Now, the future of Madewell hangs in the balance: Despite posting revenues that surged 14% to more than $600 million in 2019, it had been dragged down by ailing sibling J.Crew, which suffered brand identity struggles in its attempt to cater to a more upscale audience. As part of the bankruptcy plan, Madewell will remain a part of J.Crew Group — as it continues to be the company’s moneymaker — and stay in business during court proceedings through a $1.65 billion debt-for-equity deal.
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“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 statement on Monday. “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. 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.”
Over the years since its private-equity buyout in 2010, J.Crew Group racked up a debt load of nearly $1.7 billion, with only $27.2 million left in cash at the end of the most recent fiscal year. In its fourth-quarter earnings report, the company’s flagship brand posted a sales decrease of 2% to $516.8 million with comps that improved 1%, while Madewell’s revenues increased 13% to $178.1 million with comps that spiked 9%.
As J.Crew Group attempts to emerge from bankruptcy as a profitable business, Madewell is the bargaining chip it needs to keep the company relevant to its lenders. And even when stores reopen, the retailer would need to step up its brands’ e-commerce — a platform on which Madewell has seen strength — as consumers aren’t expected to flock back to brick-and-mortar stores even post-pandemic. (J.Crew currently operates 181 outposts, while Madewell has 140 locations.)
“[J.Crew’s] retail stores were already so significantly underperforming, while Madewell has done so well for them,” said Farla Efros, president of consulting firm HRC Retail Advisory. “They’re going to use this pandemic as an opportunity to close additional stores, and some of these stores that have closed may never reopen.”