In an article we shared last month, we discussed the bankruptcy filing of JOANN fabric stores. If you missed that article, you can find it here. This month I am sharing what we have learned since that initial filing and what happens next.
A substantial amount of small business owners and consumers have been waiting as the JOANN bankruptcy process plays out. JOANN filed for bankruptcy twice within the space of a year, raising many concerns about its viability. JOANN was a very large retailer in the craft industry. The first bankruptcy filing was to shed a large portion of its debt. Initially, this raised a lot of questions about why the second bankruptcy happened less than a year after the first.
As part of the bankruptcy proceedings, JOANN shared that it was looking for a buyer for the company. Bankruptcy proceedings have a predefined series of steps that occur at each part of the process. There is a specific timing window that companies have to bid on purchasing either part of or all of JOANN. When a large company fails, who buys it? It is like catching a falling knife. At the time of the bankruptcy, JOANN had over 800 stores. This would require an even larger company to step in.
Now what happens?
In some circles, people hoped a larger retailer like a Walmart or a Target would step in. Sadly, the question of why remains. For a larger retailer to do this, they would be taking on all the challenges that led to JOANN’s demise. And it would take away from their core mission as a retailer. Still others hopes that privately held Michaels would step forward to purchase it. There is overlap on some of the inventory. But Michaels is also pretty busy. They have their core mission of growing their own stores as well as Makerplace, their online marketplace. Maybe an unconventional buyer will appear- we are still waiting.
Along the way, we also learned more about what lead to the bankruptcy from JOANN’s perspective. Declining sales, inventory issues, and sluggish consumer demand were all part of the cause. The inventory issues were a little perplexing. They described problems with inconsistent deliveries. It was a little surprising to hear this given that we were past the logistics disruptions during the pandemic. This does align with many online discussions I have seen about empty shelves in many locations.
But doesn’t the rest of it sound familiar? Last year I started talking about the decline in consumer discretionary spending. By that point, we were already a year into the pullback. I found this through analyzing what Etsy shared in their quarterly reports. How about your own business? Have you noticed changes with the economic cycles?
Over the last month, we have heard that there is not yet a buyer. This has resulted in JOANN filing to close over 500 of its stores. On Feb 14th they received the court approval and have been sharing more information on the closing locations. They are still seeking a buyer for the remaining locations.
The auction is slated to take place on Feb 21st. This is a closed meeting, so we can’t attend to listen in. The results of the auction should be released Feb 26th if the court timeline holds. Right now we wait to see if someone bids more than the stalking horse bidder, or if the stalking horse bidder wins and it is liquidated.
What are my takeaways from this?
Bankruptcies are not a fun topic to write about. I’m not in a position to judge what the company has done right or wrong. I feel sad for the small businesses that relied on JOANN’s for sourcing materials. I feel sad for the customers that are losing their craft retailer. There is something special about the tactile feel of products that is not possible to replicate online.
There is something that every business owner can take away from this bankruptcy. This is the bigger lesson. How closely are you paying attention to economic cycles? How much do you know about what your target market is or is not spending right now? And how might that affect how you plan for inventory and sales?
For example, new tariffs have been introduced in the US with China. Have you considered where you source your materials from? Try to be proactive with understanding core business data (sourcing, sales, expenses, etc.). This will allows you to be more prepared to manage uncertainty. Readers from the UK will absolutely relate to managing uncertainty after navigating Brexit and GPSR. Frankly, most are getting to be experts at maneuvering and surviving uncertainty. Follow more UK artisans- many openly talk about challenges as they navigate them.
This part of business isn’t necessarily the most fun. We have to put on our nerdy hats and dig into the backend details of a lot of things. However, it helps you when it comes to decision making so that you don’t get paralyzed or overwhelmed. If you haven’t been digging hard into your statistics, now is the time. Who knows, you might even find new opportunities in there you hadn’t even considered before!
I will continue following the JOANN story to its conclusion. By next month we should have an answer on what the next steps with the company will be.
