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Will JOANN Facing Bankruptcy Be the End for the Retailer?
In recent years, consumers have had to face the realization that the retail stores they’ve grown to know and count on can disappear overnight. Store closures of this kind have been happening for decades, and now JOANN Inc., the fabric and craft store, might be the next retailer facing extinction.
In October, Jo-Ann Stores, or JOANN, had its CreditRiskMonitor FRISK Score updated. This score generally has a 96% accuracy in predicting bankruptcies for public U.S. companies, and JOANN “has been given a score of 1, which is the worst possible score,” according to The Sun. This suggests a 9.99% to 50% probability of bankruptcy within the next 12 months. Other retailers that received a score of 1 include Rite Aid, Rent the Runway, and Farfetch.
JOANN has a rich history as an American company founded in 1943 by German immigrants in Cleveland, Ohio, and it has approximately 850 stores in 49 states as of 2023. During the pandemic, the company did well thanks to more Americans picking up new craft hobbies, but it hasn’t been able to keep up the same momentum since. Seeking Alpha stated in December of last year that “JOANN has declining sales, comps, margins, and yet increasing costs.”
After experiencing a disappointing financial outcome in the second quarter of 2023, JOANN’s metrics reflected a decline. During the 13-week span leading up to July 29, the company observed a 2.1% decrease in net sales, amounting to $453.8 million, in comparison to the same duration last year. Furthermore, the net loss deepened, reaching $73.3 million as opposed to the prior year’s $56.9 million. In response to these challenges, the company emphasized its commitment to exploring avenues to enhance profitability, foster revenue growth, and streamline operations. As a result, JOANN has already laid off an unspecified number of employees.
Although JOANN “has over $1 billion in debt and saw its interest expense double over the past six months from $27.7 million to $52.1 million, the company believes it can survive. It detailed its financing picture in its SEC filing,” according to The Street.
The Street shared a statement from JOANN explaining that the company believes in its three principal sources of liquidity: cash, cash equivalents on hand, and cash from operations and available borrowings under the company’s ABL (asset-based loan) Facility. These sources are purported to cover JOANN’s working capital, capital expenditures, debt service requirements, dividends, and share repurchases. Executives also believe they can obtain alternative financing sources if necessary.
Currently, JOANN has no appointed CEO. The company’s previous CEO, Wade Miquelon, retired in May, and Chris DiTullio and Scott Sekella are serving as co-lead interim CEOs while they search for a permanent replacement.
Shoppers have made efforts to share their dissatisfaction with the retailer. One Redditor created a long post with photo examples detailing their critiques of how their purchased JOANN products are of ever-increasing poor quality. Best Life also shared an article that revealed warnings from previous JOANN employees. One revelation is how a majority of employees are not properly trained and have no knowledge of sewing.
It seems as if the company’s problems are mounting quickly, but only time will tell whether JOANN will be facing bankruptcy in the coming months.
Discussion Questions
Are there any quick fixes that JOANN can take to start turning things around before it’s too late? Do you think it’s too late for the retailer to avoid bankruptcy?
Poll
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Lucille DeHart
Principal, MKT Marketing Services/Columbus Consulting
Melissa Minkow
Director, Retail Strategy, CI&T
Joann is in a financial mess. Not only does it have a huge debt pile and associated interest, it is not profitable at operating level. The company is desperately trying to make cost savings. These will help, but the key is growing the sales line – something that is very difficult as the crafting market is more pressured, and alternative retailers and channels are proving to be more attractive to some of its once loyal customers. Chapter 11 is not the favored option but it’s a last resort if they can’t sort out the mess.
JOANN is facing some very challenging times, but bankruptcy does not appear to be the only path forward. This retailer still generated $454 M of revenue in their latest quarterly results. Yes, they’re losing money and they need to cut spending to show progress on the profitability front — they can worry about growth when they stabilize the business. They’re also operating with no permanent CEO. They need to get their leadership house in order. But despite these challenges, JOANN caters to a loyal and dedicated market of crafters and this is critical to their survival and turnaround.
I never like to see a legacy brand become diminished, but the economics of Joann don’t add up. Much like Blockbuster, they had the market but did not evolve to stay relevant–only there is no current equivalent of a Netflix to absorb the opportunity in this space. This will leave a void in the market similar to what Toys R Us did for toys. That said, there is some light if Joann can reinvent themselves in a whole new post bankruptcy format. Experiences are still key so I can see surfacing again in community spaces with classes, social engagements, and special events (think Soul Cycle for crafts). Regardless, this chapter is closed for now.
Joann and Michael’s both are kind of the last big boxes standing. Michael’s recently invested in revamping stores, streamlining checkout, upping their loyalty game. Joann would definitely benefit, and potentially quickly, by taking a look at their promotional strategy. It’s very confusing and there is a lot of over-promoting and overlapping promotions. Barring anything else, getting smart and streamlined and simple about the offer to customers could help both top and bottom line – at the same time.
100% correct. Michael’s has done an awesome job of branding, merchandising brilliance and yes investing in value customers while completely revamping their loyalty program. They celebrate their customers. Joann has maintained a 90’s model of operating and it boggles the mind to see how poorly they have evolved over time. Last I heard arts and crafts were a wonderful way to pass the time while shut in for two years due to the pandemic.
Approximately half of JoAnn’s sales are fabric. Too bad the art of sewing is becoming a lost art. For JoAnn to survive, there’s going to need to be a resurgence of people interested in learning how to sew or use fabric in creative, non-sewing ways. The last time I was in a JoAnn, most of the customers looked like Boomers, which doesn’t bode well for continued financial viability. (Note: I was JoAnn’s director of loyalty many years ago.)
Negative comps and shoppers going to the trouble to post about bad quality make for a very tough combination. The pandemic provided a temporary boost, but like other businesses, JOANN couldn’t sustain the newfound business. And while the debt service used to be burdensome, with current levels of interest rates makes the debt a significant burden indeed. Can they turn the comps around while at the same time making significant expense cuts? Tough to predict a happy ending to this story.
The art of selling fabric is exactly that. It is extremely high touch and consultative, rife with potential waste and a very subjective purchase. Cheap is not the way to expand a base as serious crafters are often equally serious about the quality of their supplies. And cutting a yard of fabric for purchase has the same overhead if the fabric is $4.99 a yard or $15.00 a yard – margin challenge! The fundamentals of the assortment need a deep dive to ensure that a profitable mix exists in the first place.
Boy, times have changed. I remember when Joann’s notions wall had the fastest selling product on peg hooks in the country. And they had really good systems for getting the planograms right. The hobby side of the business was always at risk to Michael’s, Hobby Lobby and even PartyCity. I think the big kicker is that fast fashion and time starvation has caused sewing to become a lost art and that Joann has missed building one of the “5 C’s” of modern retailing – community. Some of that no doubt comes from a lack of one leader, and some of it seems to come from inertia
Still, there’s nothing worse than cutting product quality to cut expenses.
Long story short, I don’t think they’re losing the tchotchke war to Michael’s, I think they’re losing the battle with the future. It’s imperative to become more customer friendly. And be careful with the ABL. they are double edged swords.
We love a good death knell, don’t we? Well, I don’t. Not for JOANN.
I have been an active part of the creative industries for most of my career, so I am just going to say that if the executive team at JOANN believes the chain can survive, then I do too. They will find a way to make that happen.
Joann sits in such a niche space, it’s tricky to stay relevant for an extended period of time. I don’t necessarily think this is the end for them, but there needs to be established, consistent leadership and a clear plan for a way forward.
Joann’s numbers are troubling indeed. But even if they opt for bankruptcy, they could still emerge in the model of many other major retail brands in the recent past. From Michaels and Hobby Lobby to Fabric.com and Amazon online, the competition will not make this easy.
To survive and thrive, Joann will want to rethink its strategy from scratch. If it’s a sewing mecca at heart, then cut down the store footprint and make it all about the sewing community and serving their needs. But don’t try to fill tens of thousands of square feet with everything that’s also available elsewhere. That would be a pattern (pun intended) for unraveling the business for good.
Evolve the floor of the store? Hire effectively with passionate employees who love the craft and sewing hobbies. Get a recognition and reward program up and running. I worked on this business long ago while ad agency side in Cleveland. Even back then they were “old school”. It takes effort and vision to deliver an experience in a store of this type. Michael’s has done it over the past two years with great leadership at the CMO and Customer Strategy/Loyalty areas in particular. Joann can survive but do they have the resources to do it?
We haven’t considered a full range of options here. Most of the beneficiaries of a pandemic surge struggle in the aftermath. In part, it seems management finds it far too easy to believe the pandemic surge levels will continue forever. This has hit Amazon, Nike, Peleton, and others I know which have not been public about the challenges when the surge drops.
Sounds to me like this is Joann’s biggest challenge. So I hope their options give them the runway to continue.
I also wonder about the large debt. Not knowing their history well, is this a leftover from an LBO which has burdened them with debt?
A specialty store specializing in crafts and sewing whose customer base is dwindling, no CEO and $1B in debt….sounds like liquidation time to me.
suggests a 9.99% to 50% probability So much for precision, I guess (then again, what, exactly, goes “generally has a 96% accuracy” mean?) Honestly, it seems a little weird to have singled out Joanna – sure they (seem to) have issues, but so do lot’s of retailers – but since we have: my intuitive feeling is they have a core business – fabrics – which they’re quite strong in, and the “other” part – crafts – which is quite’ competitive. Pehaps they’d be better off sticking with the former? Then again, being the ‘last man standing’ in a dying industry isn’t such a great prospect either (which may well explain why they’re into crafts in the first place).