Brooks Brothers Files Chapter 11 Bankruptcy Amidst Coronavirus Pandemic
After months of quarantine restrictions like working from home, closure of nonessential businesses, and no gatherings of 10 or more people, many brands that are household names have been forced to file bankruptcy due to the coronavirus pandemic. Fashion companies have been especially hard hit since they are usually non-essential, and people have less reason to buy new clothing for the time being. Brooks Brothers, a luxury men’s fashion company, has recently joined the ranks of companies to file bankruptcy during the pandemic. Despite $991 million in sales last year, Brooks Brothers will join retail giants like J. Crew, JC Penney, and Neiman Marcus in filing for Chapter 11 bankruptcy.
2020 is a year like no other when it comes to businesses that seem like staples in society seeking bankruptcy protection as Coronavirus is creating less income, less sales, and less disposable income to spend on luxury items.
The Road to Chapter 11 Bankruptcy
Brooks Brothers was founded in 1818 and has been favored by the likes of investment bankers and even United States presidents. The company became a favorite for impressive men’s office fashion and eventually grew to approximately 250 United States locations. There are more than 500 locations worldwide, and Brooks Brothers has 4,025 employees. The company has uniform contracts with companies like American Airlines, and is also sold at department stores including Nordstrom and Macy’s.
In an effort to remain competitive, Brooks Brothers has had to innovate its original company design. The company began offering sportswear so it could compete with other luxury retailers who don’t just offer office attire. Brooks Brothers brought on Zac Posen, a high-end American fashion designer, for collaboration. Although less affected by online competition than other fashion brands, the company also worked to grow its online store, with online sales account for about 20% of Brooks Brothers’ sales before the pandemic. However, these efforts weren’t enough to nullify the devastating impact of the spread of COVID-19. Many shoppers prefer to buy items like suits and button up shirts in person to achieve a more tailored look. Not only that, but there is nowhere for a Brooks Brothers shopper to actually wear their purchases. A Zoom meeting hardly calls for a brand new suit. Gyms, bars, and other venues are closed. Major events are canceled. And some who might have bought Brooks Brothers items despite COVID-19 restrictions are now unable to due to skyrocketing unemployment.
An Explanation of Chapter 11 Bankruptcy
When most people think of bankruptcy, they are either thinking of Chapter 7 or Chapter 13 bankruptcy. Chapter 7 is only available to those who meet certain income limits. There are also limits on how much property the filer can have, and how frequently they can file. Chapter 7 isn’t reserved solely for personal bankruptcies. Businesses may also seek relief from debt under Chapter 7. The company’s executives will be relieved of personal liability for business debts, but at a price- the business must close down entirely. Chapter 13, or the “wage earner’s bankruptcy,” is a reorganization into a payment plan that lasts either 3 or 5 years. Chapter 13 doesn’t have the same limits on income, but the filer must have enough income to be able to afford minimum plan payments, that minimum depending on the filer’s debt structure.
Chapter 11 works far differently from Chapter 7 bankruptcy, and Chapter 13. When a business files Chapter 11, it cedes decision making authority over things like entering new contracts, closing locations and selling inventory, or selling company shares. These decisions, and many more, will be under the control of the bankruptcy court and a Chapter 11 bankruptcy panel. The company will have to determine who it owes the highest debts to, who will form a panel. The panel will have to approve these types of decisions, along with other issues related to the bankruptcy. The upside is that the company can continue operating after the bankruptcy has been completed.
Debt Restructuring and Store Closures
Brooks Brothers has secured $75 million in financing from WHP Global to help the company through the debt restructuring. The company had also received a $20 million loan in May from Gordon Brothers. In August, the company will stop approximately 7% of manufacturing in Massachusetts, North Carolina, and New York. It will close 51 of its North American store locations. This will help the company spend less money on retail space, and allow for a focus towards brand licensing. Authentic Brands, a large brand licensing company, may even buy Brooks Brothers as part of the bankruptcy.
If you are facing a similar fate as Brooks Brothers and may need to explore options for debt relief, Contact our Mesa Bankruptcy Attorneys today for a FREE Consultation and Bankruptcy Evaluation. Find out what types of debt relief that you qualify and what may be the best fit for your situation. Protect you and your family! Call us at (480) 800-0033 and get started on the road to financial freedom.