Joann, a store where people buy crafting materials, might soon declare bankruptcy, according to a report from Bloomberg News on Saturday. Sources familiar with the situation said this could happen early next week.
This step would be part of an agreement allowing Joann's creditors to take over control. It would also help Joann get rid of some of its debt. Bloomberg added that the company has secretly discussed this plan with its creditors.
Joann Seeks Quick Bankruptcy Exit Strategy
Joann, known for its 850 craft stores nationwide, is secretly discussing with its creditors to secure new funds to boost its cash.
The company aims to gather enough support from its lenders to quickly move out of Chapter 11 bankruptcy through a strategy known as a pre-pack filing.
Since going public in 2021, Joann has struggled with cash flow and stock management due to the challenging environment for retail stores. To raise over $34 million, Joann sold and then leased back its facility in Hudson, Ohio.
However, according to an analysis by Moody's Investors Service, the company still grapples with high-interest costs and obligatory payments on its loans.
The backdrop to Joann's financial woes is a broader trend of consumers spending less on items they don't need, including craft supplies. This shift comes as people are trying to manage higher food prices.
Last month, Bloomberg News reported that Joann was discussing its financial situation with its lenders.
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Recently, Joann revealed a drop in its sales by 4.1%, with both overall and specific sales falling. The decrease was partly because the company moved its Halloween products sale earlier than usual. Christopher DiTullio, the company's chief, mentioned that customers buy fewer items each time they shop and are not buying in bulk as before.
The talks about bankruptcy are still happening, and nothing has been decided yet. However, Joann is trying to gather enough new funding.
This would help it to quickly get through a bankruptcy process known as a "pre-pack filing," according to Bloomberg, quoting sources familiar with the matter.
Joann has announced it carries a long-term debt of approximately $1.1 billion. Bloomberg has gathered data showing that the company's loan, which is supposed to be paid back by 2028, is now valued at less than 10 cents for every dollar it owes.
Rising Grocery Costs Lead to Cutbacks on Luxuries
With grocery costs climbing, Americans are tightening their belts, focusing their spending on necessities and cutting back on luxuries like crafts. Despite a general decline in inflation, food prices continue to rise faster than other items, pushing nearly 58% of consumers to reduce unnecessary spending.
This trend spans income levels, affecting almost half of all those earning above $100,000 and over 60% of those earning below $50,000 annually, according to PYMNTS and the U.S. Bureau of Labor Statistics.
As financial pressures mount, experts predict a surge in large company bankruptcies in 2024, reminiscent of the dotcom bubble's fallout. Rob Hornby of AlixPartners highlights an expected increase in insolvencies across various sectors, indicating a challenging year ahead for the economy and consumer spending habits.
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