The headline is annoying—it’s not the pandemic causing all these retailers to go bankrupt (many of them were headed that way before the coronavirus outbreak). It’s the response to the pandemic that’s administered the coup de grace. Nevertheless, the story is stark and frankly, frightening. From Wolf Richter at wolfstreet.com:
A dozen major brands, thousands of stores, after years of struggling. Work-from-home is annihilating casual and formal office attire.
The brick-and-mortar retailer bankruptcy plot continues to progress relentlessly. Today, it’s Brooks Brothers, the oldest men’s clothier in the US that also diversified over the decades into women’s attire, sportswear for college kids, and the like. Owned and run by Claudio Del Vecchio – often labeled “billionaire” whose dad founded Italian eyeglass maker Luxottica – Brooks Brothers filed for Chapter 11 bankruptcy in Delaware on Wednesday.
Brooks Brothers has around 500 stores globally and 200 remaining stores in North America. Unlike other American brands that have off-shored all manufacturing of clothing to cheap-labor countries decades ago, Brooks Brothers has continued to operate three plants in the US that make suits, ties, and shirts, accounting for about 7% of its sales. The rest of its merchandise is manufactured in cheap-labor countries.
Brooks Brothers, like other retailers, has been caught up in the brick-and-mortar meltdown. It has tried to get on the bandwagon, and about a quarter of revenues are from ecommerce – but that’s not helpful for its expensive-to-operate stores. In addition, it has gotten hammered by the years-long structural shift away from its costly suits to casual office attire, where it competes with everyone out there.
In November 2019 already, the company hired investment bank PJ Solomon to explore strategic alternatives, according to sources cited by fashion magazine WWD at the time. Rumors that Del Vecchio was trying to sell the company had been swirling around for a long time, which he had downplayed in 2018, saying he was “not trying to dump the company. People come to me and inquire all the time. But are we trying to sell the company? No.”
Well OK. Del Vecchio, via his Retail Brand Alliance, had acquired Books Brothers in 2001 from British retailer Marks and Spencer, which had acquired Brooks Brothers in 1988.
It hasn’t been exactly smooth sailing over the past few years, when the Pandemic and the lockdowns hit.
But even worse for Brooks Brothers, it was hit by the shift to work-from-home where “office attire” boils down to the cargo shorts that your wife told you years ago to never-ever wear in public again.
Del Vecchio told the Wall Street Journal in an interview: “Through every era, we had challenges, but we were confident we would be able to manage through them,” he said. “Retailing has been changing a lot in the last four to five years, and we were in the process of adapting to that new environment. When coronavirus came, there was really no way to sustain things.”
The company has secured a $75 million debtor-in-possession (DIP) loan from WHP Global, a person familiar with the matter told the WSJ. WHP Global already owns the apparel brands Anne Klein and Joseph Abboud. Brooks Brothers will use the court proceedings to try to find a new owner.
Del Vecchio told the WSJ that he was unsure what he would do after Brooks Brothers is sold. “For now, I want to ensure a long life for this company,” he said.
Waiting in the wings with their bankruptcy filings:
Ascena Group, which operates nearly 3,000 stores in the US under seven brands – Ann Taylor, LOFT, Lou & Grey, Lane Bryant, Cacique, Catherines, and Justice – is now said to be preparing a Chapter 11 bankruptcy filing as soon as this week and is considering closing at least 1,200 stores and selling or shutting down some brands.
It would be a prepackaged bankruptcy filing where it and its creditors have worked out an agreement that would eliminate $700 million of its $1.1 billion in debt.
The company closed most of its stores in March. In May, it began reopening stores – but traffic to those stores was way down from already low levels last year and cash flow has been “significantly reduced,” the company said in its update.
Bankruptcy fears have dogged the company for a while. Back in August 2019, with cash running low, and brick-and-mortar sales melting down, and two months after Ascena had announced that it would close all its 661 Dressbarn stores, its lenders began fearing a bankruptcy filing and started preparing for it.
These fears heightened last fall when the company failed to sell two of its brands, Catherines and Lane Bryant. The Pandemic is just closing the bankruptcy deal that had been inevitable for a while.
Tailored Brands, the holding company for men’s apparel stores, including Men’s Wearhouse, JoS. A. Bank, and K&G, disclosed in an SEC filing on June 10 that it may have to file for bankruptcy. The plot thickened on July 1, when the company disclosed in an SEC filing that Men’s Wearhouse “elected” not to make an interest payment of $6.1 million on senior notes that are due in 2022. If it doesn’t make the payment during the 30-day grace period, the non-payment will become an “event of default.”
A bankruptcy filing, it said on June 10, “could result in a complete loss of shareholder value,” though there isn’t much left to lose, with shares having been reduced to a penny stock.
In its June 10 update on how well things were going at its reopened stores and at its ecommerce site, Tailored Brands said that total revenues in the quarter ended May 2 collapsed by 60% year-over-year, with even ecommerce sales plunging 32% — when everyone else’s ecommerce sales were skyrocketing. By June 5, the company had reopened 634 stores, and average comparable sales at stores open at least an entire week were down 65% at Men’s Wearhouse, 78% at Jos. A. Bank 78%, and 40% at K&G.
With both ecommerce and brick-and-mortar sales plunging, nothing is going to keep the heavily indebted company out of bankruptcy court.
Brooks Brothers and Tailored Brands have all the issues other brick-and-mortar apparel retailers have. But in addition they share their focus on men’s clothing for the office, which has long gotten hammered by increasingly casual office-dress codes, and now – this explains in part the collapse of Men’s Wearhouse ecommerce sales – the shift to work-from-home when even casual office attire is no longer needed, and the old never-to-be-worn-in-public-again cargo shorts and tank-top found a new purpose.