JoAnn-"restructuring"

[mbz321]

Yep, I've seen a handful of people in my social media feeds today reacting to the news by mentioning how they are going to miss JoAnn or "at least Michaels and Hobby Lobby will still be around."

Let's face it though, how many companies, especially retail companies, survive Chapter 11 long-term?

[pseudo3d]

Yep, I've seen a handful of people in my social media feeds today reacting to the news by mentioning how they are going to miss JoAnn or "at least Michaels and Hobby Lobby will still be around."

Let's face it though, how many companies, especially retail companies, survive Chapter 11 long-term?

There is a certain "sharpshooter fallacy" in post-Chapter 11 bankruptcies and eventual failure. The problem is post-Chapter 11 goes two ways:
1. Use Chapter 11 to balance the books and shedding assets, but don't create a workable plan and then just burn through the rest of the cash. Sometimes this involves a negative cycle (cut services -> customers notice and profit goes down -> cut services -> repeat), sometimes not.
2. Use Chapter 11 to balance the books and shedding assets AND create a workable plan, but now it's seen as an undervalued asset and gets bought out. Best case scenario is combining with a more powerful company and staying that way, not being run into the ground.

[storewanderer]

Is it possible they've already closed the stores they want to close and they can quickly just cancel the leases this week and move on?

Otherwise I cannot imagine a retailer not closing stores to get out of unproductive stores during Chapter 11.

[ClownLoach]

Is it possible they've already closed the stores they want to close and they can quickly just cancel the leases this week and move on?

Otherwise I cannot imagine a retailer not closing stores to get out of unproductive stores during Chapter 11.

They have a lot of stores that seem to need to be closed. I refuse to believe that the entire chain is cash flow positive and productive and their only problem was debt. They have closed very few stores so far this year, single digits. Only one closed in SoCal and it was really a very expensive relocation from a tiny box in Laguna Hills to a fancy former Ralphs Fresh Fare.

It seems like they wait until leases are completely up and then relocate to save on dead rent. Problem is that they were struggling with capital for the replacement stores before. I am unsure how this privatization is going to help them fix the issues without burying themselves in debt again.

I think the customer reaction to all of the stores opened or fully remodeled in the last five years has generally been good. They had a "basic" new format store that they were using when they first changed the logo to the lime green and the store just had inspirational quotes and stuff on the walls but basic fixtures and signs. Then in 2021-2022 they started opening (and remodeling to) a "deluxe" format with very high end finishes for today's big box retail. Custom light fixtures, lots of spotlights and graphics, custom cabinetry etc. that really make the stores look fabulous. It's the best looking craft store out there. But I have to wonder, would a slightly less fancy store be acceptable to the average shopper of their old, clunky, dirty formats? Maybe like the ones they were first opening with the new logo that were just simple, good lighting, concrete floors, clean paint, lime green signs? I think the cost of these deluxe remodels might be too much, combined with cheap real estate investment processes that require perfect alignment of the stars for a new building to be available right when the lease is up on an old one.

They must find a viable path to fix the old store problems which is very similar to the issue the discount store industry faced twenty years ago. Joann is like Kmart, Michaels is like Target, and Hobby Lobby is like Walmart. We know how that worked out for Kmart who failed to update their brand. Eventually even the older formats that were productive fall by the wayside as customers appreciate the better experience the competitors cleaner, brighter, newer and easier to shop store provides.

The other issue is that they unnecessarily put the burden on their employees when they were running out of cash. The articles all say the same thing, that they moved to a level of service and store standards that the customer found to be unacceptable. The problem is they clearly had a tenured, committed workforce who had put up with a lot over the years working in old, dingy stores with bad air conditioning and work out equipment. But they were not going to stay if they weren't getting any work hours. I suspect they lost thousands, maybe ten thousand or more workers over the last year. Although the stores were old and clunky, until the last year or two they were at least well staffed. Now they have one worker manning cutting counters built to have as many as six workers, one cashier only, and they don't even have enough money to install self checkouts to get the line down (plus that would mean more staffing). So how exactly will they rebuild their workforce and replace the decades of experience lost in each store?

The staffing problem might be even worse than the building problems. Especially when they try to hire new employees at minimum wage who realize they're working in a old dumpy building that has few amenities, bad AC, lousy bathrooms, old equipment. Joann clearly got into this mess because they had to spend all their money on debt, but now that it has been halved will that make any real difference if they're paying today's higher interest rates?

I think the answer was still to combine with Michaels but I'm reading their debt problems are far worse than Joann so they lack the capacity to take on such a project either.

[Retailuser]

Any closures announced?

[ClownLoach]

Any closures announced?

Zero. And if they're going to be doing an expedited exit of chapter 11 where they're out in April then they needed to start liquidating any closing store the day they filed so that they would be done before end of bankruptcy.

It sounds like this is really just a sale of the company to it's creditors using chapter 11 to insulate themselves from unseen liabilities, sell the company "free and clean," and also allow the creditors to write off the losses on cancelled debt against their taxes.

If so, great for them as they will avoid negative PR from closures/layoffs, and especially if they carefully announce to everyone that they're out of BK once it happens. I just think they're missing a tremendous opportunity to address the serious problems with their obsolete store fleet, and it could come back to haunt them in the future.

[storewanderer]

JoAnn exited bankruptcy.

https://www.reuters.com/business/retail ... 024-04-25/

"Joann creditors, who agreed to cancel about half of the company's debt and take ownership of the company's post-bankruptcy equity, unanimously voted for the restructuring."

ZERO store closures (not sure I agree with that, but good for them and their people to keep the store base stable).

[ClownLoach]

JoAnn exited bankruptcy.

https://www.reuters.com/business/retail ... 024-04-25/

"Joann creditors, who agreed to cancel about half of the company's debt and take ownership of the company's post-bankruptcy equity, unanimously voted for the restructuring."

ZERO store closures (not sure I agree with that, but good for them and their people to keep the store base stable).

I think they are so fragile that if they had any waves of store closures it would not have stopped. Customers would have waited for their store to close, and with the crashing sales it would eventually become a self fulfilling prophecy.

So I guess the good thing is they survived bankruptcy and exited in a better financial situation. I have no qualms about the shareholders being wiped out, but I hope that they didn't have stock incentives for employees and management that were destroyed in this process as that would leave them very jaded and demotivated.

The bad news is they still don't have any money to fix their dumpy stores, consolidate the losers into one relocated winner store as they have been doing painfully slowly in SoCal (Fullerton, San Marcos, Laguna Niguel, and elsewhere). They are going to need the new creditor ownership to sell them to someone who is interested in actually growing the company and not an Apollo type that will just heap piles of debt onto the balance sheet until they're smothered to death. But who would be interested in taking on such a difficult cause and spending the money, considering that it is a very long return on their investment?

Good for Joann, they won the battle. Now they need to figure out how they could go win the next one before they still lose the war.

[storewanderer]

JoAnn exited bankruptcy.

https://www.reuters.com/business/retail ... 024-04-25/

"Joann creditors, who agreed to cancel about half of the company's debt and take ownership of the company's post-bankruptcy equity, unanimously voted for the restructuring."

ZERO store closures (not sure I agree with that, but good for them and their people to keep the store base stable).

I think they are so fragile that if they had any waves of store closures it would not have stopped. Customers would have waited for their store to close, and with the crashing sales it would eventually become a self fulfilling prophecy.

So I guess the good thing is they survived bankruptcy and exited in a better financial situation. I have no qualms about the shareholders being wiped out, but I hope that they didn't have stock incentives for employees and management that were destroyed in this process as that would leave them very jaded and demotivated.

The bad news is they still don't have any money to fix their dumpy stores, consolidate the losers into one relocated winner store as they have been doing painfully slowly in SoCal (Fullerton, San Marcos, Laguna Niguel, and elsewhere). They are going to need the new creditor ownership to sell them to someone who is interested in actually growing the company and not an Apollo type that will just heap piles of debt onto the balance sheet until they're smothered to death. But who would be interested in taking on such a difficult cause and spending the money, considering that it is a very long return on their investment?

Good for Joann, they won the battle. Now they need to figure out how they could go win the next one before they still lose the war.

This does give them more cash to work with by cutting their debt service costs though. I don't care about the shareholders being wiped out either even though I've been a wiped out shareholder more than once, it is just how it goes sometimes.


If they go for a private equity type that just throws them more piles of debt that will just put them right back where they were before the bankruptcy... so I hope that doesn't happen... typical private equity if it does...

[ClownLoach]

JoAnn exited bankruptcy.

https://www.reuters.com/business/retail ... 024-04-25/

"Joann creditors, who agreed to cancel about half of the company's debt and take ownership of the company's post-bankruptcy equity, unanimously voted for the restructuring."

ZERO store closures (not sure I agree with that, but good for them and their people to keep the store base stable).

I think they are so fragile that if they had any waves of store closures it would not have stopped. Customers would have waited for their store to close, and with the crashing sales it would eventually become a self fulfilling prophecy.

So I guess the good thing is they survived bankruptcy and exited in a better financial situation. I have no qualms about the shareholders being wiped out, but I hope that they didn't have stock incentives for employees and management that were destroyed in this process as that would leave them very jaded and demotivated.

The bad news is they still don't have any money to fix their dumpy stores, consolidate the losers into one relocated winner store as they have been doing painfully slowly in SoCal (Fullerton, San Marcos, Laguna Niguel, and elsewhere). They are going to need the new creditor ownership to sell them to someone who is interested in actually growing the company and not an Apollo type that will just heap piles of debt onto the balance sheet until they're smothered to death. But who would be interested in taking on such a difficult cause and spending the money, considering that it is a very long return on their investment?

Good for Joann, they won the battle. Now they need to figure out how they could go win the next one before they still lose the war.

This does give them more cash to work with by cutting their debt service costs though. I don't care about the shareholders being wiped out either even though I've been a wiped out shareholder more than once, it is just how it goes sometimes.


If they go for a private equity type that just throws them more piles of debt that will just put them right back where they were before the bankruptcy... so I hope that doesn't happen... typical private equity if it does...

I just don't see where they can reinvest in the business. They cut debts but I'm sure the interest rates on their remaining debt are going to be higher. So even if debt was cut in half or so, the debt service would be a lesser reduction. The improvement in cash flow would be minimal under significantly higher rates. And they still need to immediately run a huge PR campaign with tons of ads because social media commentary reflects the typical ignorance of the public, they don't understand that the chain is not closing down and it's likely they've lost a lot of business already they need to get back. I also am unsure if they had problem business categories that they are going to remove, maybe cut back on the art supplies and frames since they are weak compared to Michaels and Hobby Lobby. Their business plan should be run the best fabric and fabric crafts store possible, period. Sell fabric, yarn, and related accessories. Don't try to be Michaels or Hobby Lobby because they're always going to be inferior to them in their core businesses.