Last week JOANN Fabric announced it is entering into Chapter 11 bankruptcy. The company initially filed for bankruptcy in March 2024, seeking to eliminate some of its debt. The first bankruptcy allowed it to eliminate a substantial portion of its debt. However, just under a year later they have again filed for bankruptcy due to financial and inventory issues.
Michael Prendergast is the Interim Chief Executive Officer of JOANN. He provided additional context as to what happened since they emerged from the first bankruptcy last year.
“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. After carefully reviewing all available strategic paths, we have determined that initiating a court supervised sale process is the best course of action to maximize the value of the business. We hope that this process enables us to find a path that would allow JOANN to continue operating as a going concern.”
This essentially means JOANN is not seeking to reorganize. It is our understanding they are seeking to sell the company. So what does this mean for our industry?
What happens next
As part of the initial bankruptcy filing, a stalking horse bidder was identified. This company is Gordon Brothers. If that name is familiar, the same company purchased the Big Lots assets during their bankruptcy and wind down. A stalking horse bidder provides the first bid to purchase a company assets, essentially setting the floor for the valuation of what a company is worth. Additional companies can still bid to purchase the JOANN assets. They must bid more than the stalking horse bid.
During this bankruptcy process, the stores are remaining open. Staff are being paid and orders are still being shipped. We have seen that they are discontinuing their affiliate program at this time.
Ripple effects on our industry
Bankruptcies cause ripple effects across an industry that affect far more than the company declaring bankruptcy. This bankruptcy creates several areas of concern for our industry. JOANN operates 800 stores in 49 US states. There is a segment of the artisan business market that purchases their supplies from JOANN. These stores are in urban centers and in rural areas. Rural areas may lose their largest craft stores or only craft stores if they close. Essentially, if it winds down it will create a hole in the market. In the short run, businesses with enough extra cash on hand may want to pre-purchase supplies. For many businesses this may not be possible, so alternative suppliers will have to be identified.
Second, we are also concerned about the impact of this process on the Loose Ends Project. JOANN has been the big corporate supporter helping fund the Loose Ends Project. As part of the Loose Ends project, skilled volunteers finish the projects of crafters who have passed away or are unable to continue due to illness or disability. This is a worldwide organization with finishers in 64 countries. They have been working on creating other sources of donation. However, these processes take time. We wrote more about the Loose Ends Project here.
Finally, the effect on suppliers to JOANN is also a ripple effect. Suppliers now have special processes they must go through to file a Proof of Claim to get paid. All the details about what happens for inventory purchased before or after the bankruptcy date is on their restructuring website. During the first bankruptcy, this was a re-organization and suppliers were paid in full. What will happen for their suppliers if the company liquidates? This will be clarified in the coming weeks and months.
This is an evolving story, and we will continue to monitor its developments. If you are interested in learning more about it, here is the press release from JOANN. And here is a link to the site sharing more information about how the bankruptcy process is proceeding.
