Tailored Brands, Lord & Taylor take different approaches to bankruptcy
Other than filing [for bankruptcy] in close proximity, the two cases are not similar. Lord & Taylor wants to sell its business to a new owner that could bring in fresh capital to the struggling retailer. Tailored Brands has struck a deal with its lenders to reorganize.
Like most retailers, Tailored Brands and Lord & Taylor were significantly impacted by the lack of foot traffic due to the COVID-19 pandemic and related shelter-in-place orders. But Tailored Brands appears to have started planning for long-term liquidity challenges and debt maturities well before the full impact of the pandemic was felt. Lord & Taylor, which had just been acquired in November of last year, virtually had no time to duck when COVID-19 landed a right hook and knocked the retailer down.
With the help of its lenders, Tailored Brands came up with a holistic plan that entails a significant deleveraging of its debts. While Tailored Brands started implementing its reorganization plan prior to filing, including selling nonessential assets and closing stores, it needed the protections and relief granted by the Bankruptcy laws to complete its reorganization plan.
While Tailored Brands had struggled with slight revenue declines during the past two years, the pandemic gave it a perfect excuse to reorganize. Tailored Brands’ filing reveals that COVID-19 impacted the company’s business in a number of ways, including disruptions in its supply chains, reduced foot traffic and consumer demand, temporary store closures, and significant disruption in the workforce. Indeed, Tailored Brands temporarily furloughed 97% of its 18,000 employees and temporary staff and issued salary reductions for the remaining workforce.
Achieving a restructuring support agreement with its lenders (holding $1.4 billion in debt) is a major accomplishment for Tailored Brands, because it sets a roadmap for the entire bankruptcy and ensures that the company has sufficient working capital to endure the pandemic and its restructuring initiatives.
Announcing its intention to right size its operations, many eyes will be on the publicly-traded company (TB) that operates approximately 1,400 stores in the U.S. and Canada. But stores are not the only real estate affected here, as Tailored Brands also leases distribution centers and offices throughout several states and Canada.
Bankruptcy provides a perfect excuse to have discussions with your landlords. Tailored Brands store leases costs them approximately $416 million annually. While negotiations with 900 landlords are still ongoing, prior to filing, the company already obtained deferrals from approximately 60% of its go-forward landlords during April and May 2020.
Lord & Taylor, which operates 38 stores and was acquired last year by Le Tote from Hudson’s Bay, announced in its first-day filings that it was looking for a new owner—hopefully one that can breathe cash and fresh ideas to the oldest retail department chain.
Also in its first day filings, Lord & Taylor revealed it had already been struggling from adverse macro trends, including competition with retailers that had a better online presence or other retailers that had less debt. The problems facing the retailer were significantly compounded when it was forced to close all its locations due to the shelter-in-place orders.
Besides the lack of foot traffic, Lord & Taylor also revealed that the pandemic caused a disruption to its supply chain and decimated its work force.
It does not appear that Lord & Taylor has much time to spend in bankruptcy, as it is funding the case with its ever diminishing revenues, not with separate financing. To that end, the company revealed on day one that it is on the selling block and will be conducting store closing sales for its storefronts. Lord & Taylor and Le Tote also filed a Chapter 11 plan on day one that reveals the intent to pay off the secured lenders and leave the remainder of sale proceeds for general unsecured creditors.
It’s a shame. Le Tote purchased Lord & Taylor with the intent of pivoting its traditional brick-and-mortar model to a more e-commerce-based model. It just never had a chance to see its plans through due to the COVID-19 pandemic.
Both Tailored Brands and Lord & Taylor are availing themselves of the powerful tools provided by the Bankruptcy Code to relieve themselves from creditor pressures, restructure long-term obligations, dispose of assets and restructure or do away with certain lease obligations. While these tools are theoretically available outside of the Chapter 11 process, rarely can they be employed efficiently or utilized successfully outside of an in-court process.
The two different approaches taken by Lord & Taylor and Tailored Brands also demonstrate how flexible the Bankruptcy Code can be. Because of planning ahead, there is a good chance both approaches will succeed.
Joseph Acosta is a partner at the international law firm Dorsey & Whitney in its bankruptcy practice. During his 21+ years as a lawyer, he has been involved in some of the largest and most complex restructurings, Chapter 11 bankruptcies, and litigation projects in the United States.