iStock.com/StevenStarr73
How Should JOANN Capitalize on Its Second Chance?
Earlier this year, JOANN, the 81-year-old fabric and craft retailer from Ohio, filed for bankruptcy due to a significant decline in customer spending, as reported by CNN. Despite securing $132 million in new funding to reduce its $1 billion debt, JOANN assured customers that its stores and online platform would continue as usual. The bankruptcy process, which involves transitioning to private ownership, aims to streamline operations and reduce debt levels.
According to Neil Saunders, managing director of GlobalData, “The bankruptcy of JOANN has been looming for a long time and was always a matter of when, rather than if.” He noted that the retailer’s customers were increasingly opting for lower-priced rivals like Hobby Lobby due to “weakening store standards and declining customer service levels, partly because of staffing cuts.”
Previously discussed on RetailWire was the notion of bankruptcy being the end of JOANN. This also revealed a growing discontent on social media about the frustrations of the retailer’s customers. These customers expressed dissatisfaction with the quality of JOANN’s products and store locations. Now, in a swift move, JOANN is on the verge of exiting bankruptcy proceedings. Expectations are high for JOANN to conclude its financial restructuring and step out of the court’s supervision “in the coming days.”
The arts and crafts retailer announced that its Prepackaged Joint Plan of Reorganization has been confirmed by the U.S. Bankruptcy Court. Expectations are set for the company to emerge from bankruptcy with significantly reduced debt, marking its lowest level in over 10 years.
At a court hearing in Wilmington, Delaware, on Thursday, U.S. Bankruptcy Judge Craig Goldblatt approved JOANN’s restructuring plan, which will eliminate $505 million in debt while keeping all 815 retail locations operational, according to Reuters. The judge described the outcome as “very good” for employees, landlords, and craft suppliers alike. Creditors, who have unanimously agreed to cancel half of the company’s debt and assume ownership of its post-bankruptcy equity, have facilitated a smooth process, commended by Goldblatt for the level of consensus and hard work.
Throughout the expedited process, JOANN’s over 800 stores have remained open, and JOANN.com continues to serve customers’ creative needs. The company has also managed to retain the jobs of its 18,000 employees.
Chris DiTullio, chief customer officer, stated in the company’s press release, “We are pleased to have reached this significant milestone less than 40 days after initiating our court-supervised process.” He also highlighted the dedication of team members and support from industry partners and customers and emphasized the company’s commitment to enhancing customer experience and product offerings.
Scott Sekella, JOANN’s chief financial officer, acknowledged the support of financial stakeholders, enabling smooth operations during restructuring. He highlighted the company’s improved financial position and expressed readiness to collaborate with vendors and partners moving forward.
“We are grateful to our financial and industry stakeholders, whose support enabled us to continue operating smoothly and move through this process on an expedited basis. Their investment not only provides us with additional financial resources, but also reflects their confidence in our Team Members and in our business to seize on the opportunities ahead. With a strengthened balance sheet and improved liquidity, we are better positioned to work collaboratively with our vendors, business partners and landlords, and ultimately to inspire the creativity in our customers that helps them find their happy place.”
Scott Sekella, chief financial officer and co-lead of the interim office of the CEO, via JOANN
Upon emergence from bankruptcy, which could occur by April 30, according to court filings, JOANN will transition into a privately owned entity, with ownership vested in select financial stakeholders and industry parties. This restructuring marks a significant step for JOANN, positioning the company on a stronger financial footing to pursue future opportunities and serve its customers effectively.
JOANN has been without a CEO since May 2023 when Wade Miquelon retired.
Discussion Questions
In light of JOANN’s recent bankruptcy restructuring, what strategic shifts should we anticipate from the company to regain market share and enhance competitiveness against lower-priced rivals like Hobby Lobby?
With JOANN’s transition to private ownership and its ongoing search for a CEO, what leadership qualities and strategic vision should prospective candidates possess to drive sustainable growth, foster innovation, and prioritize customer experience for the retailer?
Poll
Loading …BrainTrust
Michael Zakkour
Founder - 5 New Digital &International Marketing Lead at UNILEVER
Peter Charness
Retail Strategy - UST Global
Sorting out the enormous debt load is the first step in restoring financial sanity to Joann. If this has been done, then it automatically puts the company on a more stable footing. But it does not guarantee a bright future as it is only fixing one side of the equation. The other side is the top line where sales have been in decline thanks to lower customer demand and falling satisfaction. Remedying this necessitates some investment in stores, a stronger competitive position on price, and driving better results from ecommerce. That needs creativity and an understanding that spending, as well as savings through cuts, have to be balanced.
Strictly from a financial perspective, Joann received close to $140 million in fresh financing expects to reduce funded debt on its balance sheet by approximately $500 million.
But as in the case with all other retail bankruptcies, the financial part is “easier” than winning back vendors, suppliers, service and operations companies, and everybody else that they owed $1 billion total to.
Since most companies that go into bankruptcy, then come out, tend to go under again, companies that serve them, are very reluctant to get back in the fire with them.
So, management needs not only to explain its financial restructuring, but also how they plan to re-stimulate their customer base, and profitable business, accordingly. This is something too many retailers coming out of bankruptcy fail to do. They need to “sell” their new business and marketing plans to everybody.
I have helped some clients do exactly that over the years and I can assure you with no uncertainties, that goes a long way. Db
I agree with your comment- my hope is they really start driving sales and driving customers into the store , more than before to show they are in it for the long run. What will be the differentiator now between them and the competition? It can’t be status quo coming out of bankruptcy. Things, processes, procedures all have to change for the good OR to your point they will be back there in the not too distant future.
I have not thought about Joann’s for quite a while until this article. That said, their first focus should be to differentiate. Crafts are for a select audience so offering more of the same is not good enough. There is a trend for knitting and community craft engagement– so I encourage them to create a new vision for the brand and the physical stores. Defining framing studios, crafting classes, hobby sections and other niche environments could offer a unique reason for being. They need to drive early topline sales and show growth at a profit that is sustainable.
The debt deal is a decent one, now comes the hard part. Rethinking the GTM strategy, the store experience, the online experience and a rethink on product/channel/customer fits.
I logged on their site this morning and the home page is a big banner that says “UP TO 70% OFF ENTIRE SITE SALE” – The rest of the site is very 2004.
Time to roll up the sleeves and get to work on the site, digital marketing and an integrated physical/digital approach.
As a lifetime creator, the assortment in JOANN’s would benefit from some “good, better, best” expansion. Opening price point and quality is not sufficient to support the breadth that the market needs. Doesn’t need to be a lot, but enough to show the customer base what’s possible and that JOANN’s understands that.
Have to admire a good prepackaged chapter 11 plan that has worked so well and so quickly. Here’s hoping they have a go forward Retail plan that works as well. A bit curious that they kept every store, usually a streamlined 11 rightsizes the Retail footprint, not just the debt.
It sounds like Joann has a lot of work to do on the store experience and merchandise content fronts. Even after the financial restructuring, some paring of unprofitable locations will be in order, too. And will Joann have the financial resources to do the kind of rebranding that may also be necessary?
Many consumers continue to call the store “Joann Fabrics,” without associating the store with the broader craft-and-hobby positioning of Hobby Lobby or Michaels. My wife, an expert knitter, buys most of her yarn online from Joann but buys anything else craft-related from its competitors. This needs to change, if Joann has the resources to do it.
I imagine the target customers for Joann and Hobby Lobby are the same. Not just the same in demographic, but the very same people. I also imagine the target is not growing as there are so many alternatives for people’s time today versus 30 years ago. Does Joann stand a chance versus Hoppy Lobby? I doubt it.
But that is not what this is about. This is the typical financial move: Dress up the balance sheet, cut expenses, and turn it over at a huge profit.
JoAnn is a business built for community but instead, they sell stuff. Their messaging is all about the products they offer. Not the rewarding outcomes from projects completed using those products.
Buried at the end of some JoAnn online copy is this gem… “We’re passionate about helping our customers make things with their hands, hearts & minds.”
JoAnn should lead with that. Change their messaging from we offer a lot of stuff to the above message of personal reward. Then support the development of communities around that sentiment. They offer an extensive set of online video content to help with skills development to support building and supporting a community.
When visiting the stores, and hearing comments in online forums, I notice the store’s appeal to the cosplay community and (at least here in the Twin Cities) the Southeast and South Asian communities. This is a major audience differentiator (and can be a major merch assortment differentiator) to Hobby Lobby, who makes no bones about discriminating against LGBTQ and non-Christian shoppers. Joann needs to pick up this ball and run with it to build awareness and loyalty – “we’re the craft store for everyone else.”
Heck, Hobby Lobby outright refuses to carry Halloween and Hanukkah decorations because religion. Joann should be making the play for everything Hobby Lobby leaves on the ever-expanding table – like Eid al-Fitr, Lunar New Year, Pride Month, etc., etc.
After undergoing bankruptcy restructuring to strengthen the financial position, JOANN has an opportunity to enhance competitiveness amid evolving market dynamics. Leverage its strong market presence, JOANN should invest in online platforms for convenience , offer unique product assortments, revamp loyalty program, reduce slow moving stock, operational efficiency and curated promotion to stimulate sales. Prospective CEOs for JOANN need strong retail experience, vision for innovation, strong understanding of e-commerce, entrepreneurial spirit and a customer-centric mindset.