Historic retailer Brooks Brothers could be saved from bankruptcy, but the company could survive as a shell of itself.
When Brooks Brothers emerges from Chapter 11 bankruptcy and reorganizes under a new owner, many of its 250 retail stores will almost certainly disappear in an effort to cut costs and shift the distribution of its products to less online sales. expensive and perhaps more effective as opposed to the older ones, the in-person experience that customers have received over the 200-year history of the business.
Also on the chopping block: the three American factories of Brooks Brothers in New York, Massachusetts and North Carolina. While all likely bidders will reduce the brand’s retail store footprint, some may choose to keep the factories in order to convince bankruptcy courts to look beyond the first ‘stalking offer’ made on Thursday. evening by Sparc Group LLC, a joint venture between Authentic Brand Groups and real estate firm Simon Property Group.
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The offer is known as a “stalking horse” because even though it was accepted by current management as part of the bankruptcy process, it only sets a floor in the price of the business and allows it to ‘other interested parties to participate in the tender. Sparc’s offer valued Brooks Brothers at $ 305 million, but when debt is factored in, the company’s equity value is closer to $ 115 million, according to people in the know. The company recently announced that it will lay off workers at its US factories in an effort to cut costs.
A potential offer being prepared by Solitaire Group CEO David Jackson and private equity manager Jackson Eisenpresser will likely value the company at around $ 300 million, but could seek to compete with others by promising. to maintain a significant American presence – possibly retaining more stores and factories in the United States. open, people with first-hand knowledge tell FOX Business.
Jackson notably served as managing director of Dubai-based Istithmar World, which owned high-end retailer Barneys from 2007 to 2012. Jackson also attempted a bid when Barneys was up for auction again last year, and with Eisenpresser, met the Middle East. sovereign wealth funds for additional financing.
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The partnership also assembled a management team for the new company should it bid on and win the competition which will include clothing store veteran Peter Rizzo, who was president of luxury department store Bergdorf Goodman, the people add.
Jackson’s relatives say his plan is to keep the Brooks Brothers franchise intact and to continue to manufacture clothing independently from other brands; this sets it apart from other PE companies who might consider transforming it into another brand while using the Brooks Brothers label.
Another bidder in the mix is investment firm WHP Global, which manages brands such as Joseph Abboud and Anne Klein. It’s unclear what their plans are for the brand at this point or if they will close any Brooks Brothers stores or factories.
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In a statement to FOX Business, a spokesperson for WHP said, “These are the first rounds in the Brooks Brothers bankruptcy sale process. The next key date is the auction. Our company, WHP Global, backed by funds managed by Oaktree Capital & BlackRock, is a bidder. We strongly believe in the power of the Brooks Brothers brand, the global footprint and the leadership team. We look forward to participating in the auction – that’s when the future of Brooks Brothers will be determined.
A representative of Solitaire did not comment.
“Unlike 2008, we won’t see the same rapid recovery” in the economy that will help the struggling retail sector, Eric Snyder, partner at Wilk Auslander and chairman of the company’s bankruptcy department, said at FOX Business. “It’s not a disease, it’s a baseball bat to the head” of the American consumer.
The issue for potential bidders is not only the closure of retail outlets, but also the maintenance of production in the United States. One of the distinguishing factors of Brooks Brothers is that its clothes are made in America. But now, as cost cutting becomes a preeminent concern, the three US factories that employ around a thousand people may be forced to shut down.
Sparc will keep about 125 of the more than 250 U.S. stores open, according to people with direct knowledge of the matter, but it’s unclear what it will do with the factories. Other bidders are said to be in the process of formalizing their office and factory plans.
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As the court hears various offers for the legendary brand, it may consider not only the price, but also the business plans these companies will adopt – namely how many stores and factories will remain open and how many jobs will be saved. The factories employ approximately 400 people out of a total of 4,000 Brooks Brothers employees.
Ultimately, it’s up to the bankruptcy judge hearing the case to decide which offer is the best. A number of other players are trying to find a way to defeat this “hunting horse,” or opening offer.
Brooks Brothers, as first noted by FOX Business, filed for Chapter 11 bankruptcy for reorganization in a Delaware court on July 8. Judge Christopher Sontchi has set August 5 as the day on which further bids can be placed and August 11 for the hearing process to begin.
Founded in 1818, the legendary brand is part of the fabric of American retail history – outfitting 41 of 45 American presidents, from James Madison to Barack Obama. Most recently, President Donald Trump wore a Brooks Brothers suit on his inauguration day.
Despite its long-standing reputation, Brooks Brothers is in a crisis – with company sales hovering around $ 1 billion since 2017 as casual wear and athletic entertainment becomes more acceptable in the workplace. Analysts’ estimates suggest sales will be down 30% this year, with the pandemic recession further eroding sales. In the past, the company has said it will not make a profit until 2022.
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