J.Crew Group has announced its biggest slate of store reopenings yet, opening the doors of 171 J.Crew, Madewell and J.Crew Factory locations effective June 12 and bringing the operating total to 315—or 64 percent of the retailer’s fleet. With the reopenings, the apparel retailer has reactivated the majority of its store associates from furlough.
Based on a successful test re-opening of seven stores, J.Crew Group began a phased reopening of its 491 stores in May. The company will continue to take a “careful approach” to the reopenings to ensure appropriate health and safety protocols for all customers and store associates, in line with Centers for Disease Control and Prevention guidelines and government regulations.
Due to increased online demand during the COVID-19 pandemic even before stores closed, J.Crew also has added approximately 400 positions at its Lynchburg, Va., distribution center.
Just two months after J.Crew was forced to close all of its stores due to the coronavirus crisis, the retailer filed for bankruptcy, becoming the first major apparel retailer to do so before Neiman Marcus, J.C. Penney and Stage Stores quickly followed suit. While J.Crew initially was planning to spin off denim-centric Madewell into a standalone public company, the retailer delayed the plans in March due to shaky U.S. market conditions before officially axing the initial public offering upon filing its Chapter 11 petition.
But J.Crew is certainly not out of the woods yet, especially as landlords including Simon Property Group, Brookfield Property REIT and CBL & Associates Management among others are still seeking rent payments for the time the retailer’s stores were closed.
On May 26, J.Crew received permission from a bankruptcy judge to delay $23 million in rent payments by up to 60 days despite opposition from more than a dozen landlords. Paying rent could put J.Crew at risk of defaulting on its $400 million bankruptcy loan, the retailer’s lawyer Ray Schrock argued at the hearing. The budget under that financing package assumed the company could defer rent.
In addition to forgoing rent payments, J.Crew has ceased paying other expenses related to its leased properties, including insurance, taxes and maintenance costs.
Grand Place, one landlord objecting to the ruling, argued in court documents that J.Crew’s bankruptcy “should not be funded, on an interim basis, by Debtors’ [J.Crew’s] landlords and administered for the benefit of Debtors’ secured lenders without some form of adequate protection being granted to Debtors’ landlords.”
Nonetheless, J.Crew called its ongoing lease term discussions with landlords “productive,” but it’s not out of the question that tensions can still flare as the landlords get impatient about repayment as stores and malls reopen.
Simon Property Group, the owner of 126 properties leased by J.Crew, is already embroiled in a lawsuit with Gap Inc., suing the retailer for $65.9 million in unpaid rent for April, May and June. As the largest mall operator in the U.S., Simon faces a growing number of issues as retail bankruptcies pile up, particularly around co-tenancy clauses—which allow some tenants to reduce rent or pull up stakes if anchor tenants leave the space. The mall operator even backed out of a planned $3.6 billion merger agreement with Taubman Centers Inc., with the latter dealing with pandemic-related financial struggles of its own.
J.Crew has worked with real estate advisor Hilco Real Estate LLC to negotiate rent concessions with landlords and assess which stores will shut down for good. As part of its restructuring, J.Crew Group filed notice with the U.S. Bankruptcy Court to reject 67 store leases. The retailer will remove a store lease from the rejection list in the future if it reaches an acceptable resolution with the affected landlord.