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Lorna Jane Bankruptcy: Athleisure Brand Wants Out of ‘Burdensome’ Store Leases

Activewear sales might have outperformed other apparel categories throughout the Covid-19 pandemic, not everyone in the sector was able to capitalize. Lorna Jane, an Australia-based seller of women’s activewear and accessories, filed for Chapter 11 bankruptcy in the U.S. and is seeking to cancel all 21 of its U.S. store leases.

Prior to the bankruptcy, which was filed in the Central District of California, the retailer attempted to negotiate new lease terms with its landlords in the hope of achieving an out-of-court restructuring. However, landlords have been reluctant to negotiate the type of long-term adjustments to leases “that are necessary to ensure the debtor’s continued viability,” the filing said.

Based on a store-by-store analysis of its portfolio, the activewear business identified all 21 of its unexpired leases as “burdensome.” The retailer also said in the filing that customer’s pivot to e-commerce surfaced serious questions about the store fleet’s profitability, meaning that the leases “provide no benefit” to Lorna Jane’s estate or the Chapter 11 case and that they “no longer reflect the market.”

Rejecting the leases would save the company approximately $14.9 million. Rent payments, or the inability to meet these financial obligations, have been a major point of contention in many recent bankruptcy filings, such as that of New York-based ABC Carpet & Home, which still owes $1 million on its Union Square flagship.

Any store closures would not impact the more than 100 locations Lorna Jane operates across Australia, New Zealand and Singapore. Additionally, the retailer will still operate an e-commerce presence in the U.S.

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Like many of its retail counterparts, Lorna Jane was negatively impacted by the Covid-19 pandemic, with revenue dipping 55 percent on a two-year basis from in its latest fiscal year, which ended Jun 30, 2021. Since July 1, sales plunged another 57 percent.

Accelerating online spending during the period appeared to do significant damage on top of the Lorna Jane consumer’s seeming reluctance to return to its stores. In particular, brick-and-mortar sales plummeted 55 percent over the year ending June 30, 2021 on a two-year basis. Sales during June to Aug. 29, 2021 also declined 55 percent when compared to the same time in 2019.

In 2019, brick-and-mortar retail sales comprised 69 percent of Lorna Jane’s overall sales, but that number made up just 49 percent of the retailer’s total in 2020. Conversely, e-commerce in that time span jumped from 18 percent of sales to 47 percent.

Of Lorna Jane’s 21 stores, 15 were located in California, which enacted some of the nation’s most stringent lockdowns. In the filing, the brand noted that upon reopening between June and September last year, all the boutiques were either operating with reduced hours or capacity, based on local restrictions and conditions.

As part of the filing, Richard Munro, CEO of Invenz, a management consulting firm that provides expertise on corporate revitalization, has been named Lorna Jane’s chief restructuring officer (CRO). Munro will oversee the retailer’s business operations and the administration of the bankruptcy case.

The company reports $6.8 million in assets and $48.7 million in liabilities, with $43.6 million in debt still owed to its parent holding companies that Lorna Jane established in Brisbane, Australia.

Excluding insider/affiliate claims, the debtor’s liabilities total $5.1 million. The largest unsecured creditor that is not an insider is the U.S. Small Business Administration, which gave Lorna Jane nearly $1.2 million in Paycheck Protection Program (PPP) loans, while the majority of remaining claims come from the retailer’s landlords regarding rent owed. In total, 74 creditors have unsecured claims.

Seven landlords have commenced actions against Lorna Jane for amounts due under leases, and others have issued demand letters. The retailer did not pay any rent obligations in September and did not remit rent on certain other leases in prior months. However, the brand has generally paid its vendors, suppliers, service providers and trade creditors in the ordinary course of business.

Lorna Jane CEO William Clarkson and the brand’s namesake, founder and chief creative officer Lorna Jane Clarkson, each own a 50 percent stake in the company, and serve as its directors.

The parent company took some heat over the summer when an Australian federal court ordered Lorna Jane to pay up $3.7 million for making “false and misleading representations to customers” regarding its products’ abilities to prevent wearers from contracting the coronavirus.

Lorna Jane claimed that the substance it marketed as “Lorna Jane Shield” when sprayed on its activewear fabric would eliminate viruses including Covid-19 upon contact. The Clarksons, who are husband and wife, both maintained that the brand was misled by a supplier.