Joann, the leading U.S. seller of sewing supplies, has become the latest retailer to file for bankruptcy this year, but in this case, the chain plans to keep its 815 stores open.
The Hudson, Ohio-based seller of fabrics as well as arts-and-crafts merchandise, said on Monday it is seeking voluntary Chapter 11 protection in U.S. Bankruptcy Court of the District of Delaware. In the prepackaged filing, the retailer said it had reached a restructuring agreement with most of its stakeholders that will slash its roughly $1.06 billion in funded debt by about $504.7 million, to $555.5 million.
The 80-year-old company saw a boom in sales prompted by restrictions as a result of the pandemic when home-bound Americans turned to crafts to fill their time and had money in their wallets from COVID-19 stimulus payments. But Joann said that's changed, with people doing less crafting and sewing indoors and stimulus money mostly spent. Joann also faces increased competition from e-commerce and companies such as Hobby Lobby.
Also, with U.S. inflation high, Americans are pinching pennies and doing less discretionary spending, hurting a pack of retailers. That wide-ranging group includes Joann, Walmart, Target, Macy’s, Dollar Tree and Dollar General, as well as some major grocery chains.
Last year, the United States was awash with bankruptcies by major national retailers. Some of those Chapter 11 filings ended up with chains, including Bed Bath & Beyond, ultimately being liquidated. Though Joann said it won't close stores, at least one analyst raised doubts about that claim.
The most notable retail bankruptcy so far this year was by beauty chain The Body Shop, a company that filed for Chapter 7 — liquidation — in the United States this month, closing its domestic stores. The cosmetics firm also said it would shut 33 of its 105 stores in Canada after seeking to restructure under that nation’s Bankruptcy and Insolvency Act.
There was a spike in retail bankruptcies last year, according to Coresight Research, from which this year has trailed.
“Many retailers underwent bankruptcy in 2023 and closed stores," Coresight Research said in its 2023 review. "We have tracked 21 retail bankruptcies, including direct-to-consumer brands in core retail for 2023, compared to two bankruptcies in 2022."
New Financing
Under the agreement that Joann reached with its stakeholders, the company has received commitments for about $132 million in new financing to reduce debt on its balance sheet by roughly $505 million. The parties also have agreed to a six-month extension of Joann’s credit facilities effective when the retailer emerges from Chapter 11.
“This agreement is a significant step forward in addressing Joann’s capital structure needs. … This includes our more than 800 stores across the United States, 95% of which are cash-flow positive,” Scott Sekella, Joann’s chief financial officer and co-lead of the interim office of the CEO, said in a statement.
When the financial restructuring is done, Joann is expected to become a private company owned by its lenders, with its shares no longer listed on Nasdaq or any other national stock exchange. The retailer said it expects the process to be completed on an expedited basis, as early as late April.
Joann generated $2.2 billion in net sales in fiscal 2023, and all its stores are leased. The company estimated it will accrue about $280 million in lease and occupancy-related expenses in fiscal year 2025.
“All stores are expected to remain open during the Chapter 11 cases, and the debtors anticipate that landlords will be paid in the ordinary course," Sekella said in a court filing.
Though Joann says it won’t shut any stores, that would be unusual in such a case, said Bill Read, executive vice president at Retail Specialists.
“When a retailer files a prepackaged bankruptcy, the customer loses faith in [that] retailer … and sales often take a nosedive, which leads to a cash shortage and possibly store closures and even liquidations, as what happened with Bed Bath & Beyond,” Read told CoStar News.
Even though Joann said its stores are making money, “it's almost impossible for a chain of 815 stores not to have some stores that should be closed because it just makes good financial sense,” Read said.
Joann didn’t respond to an email from CoStar News seeking comment on Read’s remarks.
Neil Saunders, managing director at GlobalData Retail, issued a note to clients on Joann’s woes Monday.
“On the economic front, the number of people engaging in crafts and making has declined over the past few years,” Saunders said. “While Joann is still a force to be reckoned with in the fabrics and textiles space, it has lost custom to rivals over recent years. Weakening store standards and declining customer service levels, partly because of staffing cuts, have made stores less desirable. And a desire for lower prices has driven some shoppers to alternatives like Hobby Lobby. On top of this, a lot of crafters have found it easier to shop online from a myriad of crafting supply sites. Joann has responded with improvements to its own site, but this has had little impact.”
Joann didn’t respond to an email from CoStar News seeking comment on Saunders’ remarks.