Going Bankrupt: Demise or Realignment?

*** The writing does not, and is not intended to, constitute legal advice by any means***

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When Barney's, New York's iconic department store, filed for bankruptcy last winter, it caught people by surprise. Some viewed it as an isolated incident of corporate mismanagement while others saw it as a case-in-point of the accelerating death of the brick-and-mortar retailing. (Chapter 11 of the United States Code governs a bankruptcy process. See the link to learn the basics of how Chapter 11 works!) Then came Neiman Marcus. The market suspects that JCPenny is next in line. Now with the news of J.Crew reportedly filing for bankruptcy in the coming week, the problem might be much bigger than all the spectators have been speculating.

Admittedly, J.Crew was not in a good financial shape in recent years. Despite its American preppy allure "synonymous with American style", J.Crew's pricing strategy might have lost its appeal as fast fashion giants such as Zara put relatively cheaper items on the shelf. The company's outstanding debt amounts to $1.7 billion. It did not help either that Madewell, which specialized in vibrant jeans, is not faring well. J.Crew reported about $2.5 billion in sales (not net profit!) for its latest fiscal year. With the debt maturity date fast approaching, J.Crew could not shoulder the burden. According to the news, the company is striving to secure $400 million in funding, which will be expended for bankruptcy operations.

The decline is palpable, and, even worse, may be inescapable as customers flock to e-commerce as an alternative. As Business of Fashion chronicled in detail, e-commerce is growing faster than ever. In China, 35.3% of the total sales happened online. (Interestingly, the article points out that Japan is a notable exception because of its under-investment in the e-commerce platform and people's preference for in-stores shopping experiences.) In this light, it is yet too early to predict that the entire pie of the fashion industry is ceasing to get larger. It could well be the case that realignment is taking place with the technology-savvy 20s and 30s going digital. (Personally, I think that in-store shopping experiences are replicated, albeit imperfectly, when people now can post online a photo or a video of unboxing a stylish package. This is not to say that little value is served with offline stores. There definitely is something irreplaceable about coming out of a store with shopping bags in your hands.) Whatever the scenario is, fashion brands should be fully poised to adapt to this seismic shift unless they do not want their names to be on the next bankruptcy headline of The Financial Times. Blaming the virus won't save them. The forces in play are unrelenting.