Crafts-sewing chain Joann is in bankruptcy court a second time along with Party City as the U.S. retail industry continues to see a shakeout.
Hudson, Ohio-based Joann on Wednesday initiated voluntary Chapter 11 proceedings in Wilmington, Delaware, "to facilitate a sale process," the company said in a statement. Gordon Brothers Retail Partners is the stalking-horse bidder for the chain, looking to acquire the troubled company's assets as it recently did with bankrupt Big Lots.
But in this case, Gordon Brothers has indicated it intends to liquidate Joann and conduct going-out-of-business sales at all the stores if it is ultimately the buyer, the retailer said.
Joann, an 80-year-old chain, plans to continue operating its roughly 800 stores, all leased, in 49 states in the interim. It also said it will seek other buyers.
The self-described nation’s category leader in sewing and fabrics, as well as a seller of arts and crafts products, is the latest chain that's been unable to recover from the impact of the pandemic and the crimp that inflation has put on consumer spending for discretionary items. The retail industry was hit hard with bankruptcy filings, liquidation and thousands of store closings last year — and those troubles have already spilled into 2025 for several companies.
Joann first filed for Chapter 11 in March last year, when it was burdened by just over $1 billion in debt. The next month a judge approved Joann's prepackaged reorganization plan, and the retailer emerged from Chapter 11 as a private company with its store fleet intact.
Similarly, party-goods retailer Party City first sought bankruptcy protection in January 2023 and emerged from the process in September that year. But the Woodcliff, Lake, New Jersey-based company filed for Chapter 11 again last month and is closing roughly 700 stores.
Inventory shortages
Joann's post-bankruptcy comeback was stymied in part when it faced inventory challenges, or less merchandise, because of issues with its vendors, Michael Prendergast, Joann interim CEO, said in an affidavit filed with the court.
"The company faced an unexpected ramp-down, and, in some cases, the entire cessation of production of key Joann inventory items in the post-emergence period," he said. "The retreats of in-stock levels had significant effects on Joann's core business, and when in-stock levels eventually dropped by upwards of 10%, Joann entered a new phase of operational distress that was not anticipated as part of the prior cases or its post-emergence business plan."
Joann had "very little room for error" when it came out of Chapter 11 last year, according to Neil Saunders, a retail analyst and managing director of analytics firm GlobalData.
"When Joann emerged from bankruptcy last year, it did so with breathing space rather than a complete solution to all its problems," Saunders said in a note to clients on Wednesday. "While it reduced its debt burden, it did not eliminate it. ... Sadly, Joann has been found wanting on several fronts, and it has now run out of oxygen again. Inventory issues have created out-of-stocks and gaps in assortments, which has weakened its specialist status in the fabric and textiles space and caused customer defections. The experience in many stores is also subpar, which has damaged sales."
Stalking horse
Joann didn't respond to an email from CoStar News seeking a response to Saunders' remarks. But Prendergast issued a statement on the retailer's latest woes.
“Since becoming a private company in April, the board and management team have continued to execute on top- and bottom-line initiatives to manage costs and drive value,” he said. “However, the last several years have presented significant and lasting challenges in the retail environment, which, coupled with our current financial position and constrained inventory levels, forced us to take this step. ... We hope that this process enables us to find a path that would allow Joann to continue operating as a going concern.”
Joann is seeking court approval to commence a process for the sale of substantially all its assets, with Boston-based Gordon Brothers as the stalking-horse bidder. The proposed transaction is subject to higher and better offers, and Joann plans to actively solicit alternate bids. If other qualified bids are submitted, the retailer will conduct one or more auctions, with Gordon Brothers' bid setting the floor for the processes.
Saunders offered his thoughts on what may happen.
"With $615.7 million of debt as well as $133 million of trade debt outstanding, Joann did not have room for the problems that have plagued it over the past year," he said. "Unless it can find a buyer for the business, its future now looks very uncertain. If Gordon Brothers wins the bidding, then they will basically liquidate the business to get a return. That might mean selling off the brand and [intellectual property], possibly along with some stores. Or it be more radical with all stores closing. It depends on the interest."
But Gordon Brothers had a different outcome when its acquired the assets of Columbus, Ohio-based Big Lots out of Chapter 11 earlier this month. It found a buyer for between 200 to 400 Big Lots stores, keeping the chain alive. Gordon Brothers is now in the process of selling leases for around 500 other Big Lots stores.
Joanne intends to seek approval for a consensual use of cash collateral to ensure it has the liquidity necessary to support its operations.
For the record
Kirkland & Ellis is serving as legal counsel to Joann, with Centerview Partners serving as financial adviser and Alvarez & Marsal North America serving as restructuring adviser.