By guest author Aisha Al-Muslin from Wall Street Journal
The parent company of the Men’s Wearhouse and Jos. A. Bank menswear brands entered bankruptcy hoping to turn around the nearly half-century-old business in the midst of the Covid-19 pandemic by slashing t least USD 630 million in debt while pivoting to casual wear from business clothing.
Retailer Tailored Brands Inc., which also owns retail brands K&G Fashion Superstore and Moores Clothing for Men, filed for chapter 11 bankruptcy protection Sunday after revenue declined by about 5.6 % over the past two fiscal years ending in February, despite a dominant position in the menswear market.
The company could not avoid bankruptcy once the coronavirus pandemic forced its stores to shut temporarily and slashed demand for dress clothes as millions of Americans started working from home. Covid-19 restrictions also have caused supply-chain disruptions, reduced store traffic, and cancellations of large gatherings such as proms and weddings.
In court papers, Tailored Brands Chief Restructuring Officer Holly Etlin said the business “depends heavily on consumer discretionary spending, and, as such, sales are particularly sensitive to economic conditions and consumer confidence, which have been significantly affected by Covid-19.”
The company had reported a net sales decline of more than 60 % for the quarter ended May 2 compared with the same period a year earlier. Tailored Brands is forecasting total revenue of USD 1.4 billion for the 2020 fiscal year and USD 2.4 billion for 2021, compared with USD 2.9 billion it generated in 2019.
Tailored Brands blamed its prepandemic struggles on missteps including a limited range of style offerings and pricing that missed out on revenue opportunities, as well as underinvestment in casual selections and e-commerce as customers gravitated toward online purchases. On top of that, price increases over multiple years led to higher prices compared with the competition, resulting in lower customer counts, store traffic and unit sales.
Now, the Fremont, Calif., company said it wants to speed up plans to mix its products as sales of tailored clothing decrease. It intends to focus more on its selection of polished casual clothing, including sport coats, pants, dress shirts and sportswear.
Roughly 20 % of corporate staff could lose their jobs and as many as 500 of the company’s 1400 retail stores in the U.S. and Canada could close as Tailored Brands focuses on its e-commerce business, reducing its supply-chain footprint and preserving about 15500 jobs of its current 18000 employees.
The company and real estate adviser A&G Realty Partners LLC also intend to negotiate rent reductions with landlords with the stores it plans to keep. The company spends a total of about USD 416 million annually to lease stores.
Under a restructuring support pact with senior lenders, Tailored Brands has lined up USD 500 million in bankruptcy financing to keep stores open during the restructuring. Lenders supplying the bankruptcy loan would roll their financing into an exit facility while creditors holding a term loan facility would surrender debt claims and take 100% ownership of the restructured company.
Founded in 1973, Men’s Wearhouse is one of the largest specialty retailers of men’s apparel and a leading tuxedo rental company in the U.S.
George Zimmer, who was ousted from the company in 2013, opened the first Men’s Wearhouse store in a strip shopping center in Houston, initially selling USD 10 slacks and USD 25 polyester sport coats. Mr. Zimmer had been the face of the retail chain, appearing in many of its TV commercials saying the slogan, “You’re going to like the way you look. I guarantee it.”
The company went public in April 1992 and changed its name to Tailored Brands in January 2016. The holding company used acquisitions to expand, starting with discount retailer K&G and Canadian menswear chain Moores, both in 1999.
But it was the acquisition of Jos. A. Bank for USD 1.8 billion in June 2014 that caused a distraction and the burden of a highly leveraged balance sheet since the purchase was financed entirely with debt, Tailored Brands said in regulatory filings. Jos. A. Bank started in 1905 in Baltimore.
Since 2018, Tailored Brands has divested itself of the MW Cleaners dry-cleaning chain, the Dimensions corporate apparel business and the trademarks of American clothing brand Joseph Abboud.
Other apparel retailers pushed into bankruptcy in recent months due to the pandemic include Ann Taylor owner Ascena Retail Group Inc. and upscale menswear retailer Brooks Brothers Group Inc., as well as department stores Lord & Taylor, J.C. Penney Co. and Neiman Marcus Group Ltd.
Fitch Ratings Inc. said the bankruptcy of Tailored Brands has lifted the year-to-date default volume for institutional leveraged loans to USD 50 billion, with retailers accounting for 20% of the defaults so far, the most of any sector. The trailing 12-month retail default rate stands at 18.3%, according to Fitch.