Clothing chain J.Crew has filed for bankruptcy protection. Like numerous other retailers, the peddler of preppy classics has seen its business suffer during the ongoing Covid-19 outbreak. Fashion has been hit especially hard. In March, sales at clothing stores were down more than 50% versus the prior year.
But the pandemic just brought to a head troubles for J.Crew that have their roots in 2011, when two private-equity firms bought the American retailer for $3 billion in a leveraged buyout. It left J.Crew carrying an immense amount of debt it was never able to escape. When the pandemic hit, the burden was too much to bear—a scenario likely to repeat itself at other retailers before the crisis ends.
“This wasn’t because of the pandemic. This was because of the debt load,” says Eric Snyder, partner at law firm Wilk Auslander and chairman of its bankruptcy department. He calls private equity “the two dirtiest words in retail,” and says the industry has been seeing more companies backed by private equity failing because of their debt.