Struggling retail chain shares Chapter 11 bankruptcy fate

The Covid pandemic created a short-term boom for some retailers that was followed by much slower periods. In many ways, a number of retail chains followed the same path as Peloton or Netflix.

Demand was pulled forward during the lockdown days. People needed televisions, office furniture, entertainment, and hobby items. Once they bought them, however, they were stocked up for a while.

Related: Popular fast-food chain shuts down its new restaurant brand

That created an unpredictable inventory situation for many retailers. Normally, retail chains make decisions using past data. Covid-related purchasing, however, made that data unreliable, and major retailers, including Target and Costco, ended up having to sell some bigger-ticket items at heavy discounts just to clear out their warehouses.

For larger retailers, the situation impacted a few quarters. Struggling chains, however, were not in the financial position to cover for purchasing mistakes and changing shopping patterns.

Some retailers including Party City and David's Bridal manage to reorganize their finances after a Chapter 11 bankruptcy filing. Others, including Tuesday Morning, Christmas Tree Shops, and Bed Bath & Beyond were not able to survive and their Chapter 11 bankruptcy filings turned into liquidations.

Joann, a popular retailer that sells sewing supplies and fabrics, filed for Chapter 11 bankruptcy on March 18, and its future was very much in doubt.

Joann shares its bankruptcy fate   

Some retailers have successful businesses but don't make enough money to service their debt. That was the situation with Joann. The company has a dedicated customer base, but it was dragged down by debt that built up during the Covid lockdown period.

Often, a situation like Joann's will put the company out of business, but that's not what's happening.

Joann has reached a deal with its creditors. They will end up owning the company which will be taken private and emerge from Chapter 11 bankruptcy with much less debt. 

"Joann, the nation’s category leader in sewing and fabrics with one of the largest arts and crafts offerings, today announced that the U.S. Bankruptcy Court for the District of Delaware has confirmed the Company’s Prepackaged Joint Plan of Reorganization. JOANN expects to successfully complete its financial restructuring and emerge from the court-supervised process in the coming days," the company shared on its website.

That's a wordy way to say that Joann won't be going out of business.

Here's what the new Joann looks like

Joann expects that its more than 800 stores, as well as its website, will remain open under its new owners and that its more than 18,000 workers will keep their jobs.

The news, however, is not good for the company's shareholders. As part of the deal to take it private, shareholder equity has been wiped out. Joann will be a private company owned by some of its financial stakeholders and industry parties.

The bankruptcy deal, which has been approved by a Delaware bankruptcy court, will see the retailer's debt cut in roughly in half from about $1.1 billion to $550 million. 

During the bankruptcy process, Joann maintained that most of its stores were profitable and that it had a loyal customer base. 

"We are grateful to our financial and industry stakeholders, whose support enabled us to continue operating smoothly and move through this process on an expedited basis. Their investment not only provides us with additional financial resources, but also reflects their confidence in our team members and in our business to seize on the opportunities ahead," CFO and co-interim CEO Scott Sekella said.

He noted that the company is not fully out of debt, but it's in a much better position for survival.

"With a strengthened balance sheet and improved liquidity, we are better positioned to work collaboratively with our vendors, business partners, and landlords, and ultimately to inspire the creativity in our customers that helps them find their happy place,” he added.