UPDATE: May 8, 2020: J. Crew Group filed for Chapter 11 bankruptcy protection on May 4 with $400 million in financing lined up and a pre-negotiated deal with a majority of its lenders that would deleverage its balance sheet. Under the deal, lenders will have nearly $1.7 billion in debt converted into equity in the retailer.

Dive Brief:

• J. Crew is preparing to file for bankruptcy, according to reports by CNBC and The Wall Street Journal that cited anonymous sources. J. Crew did not immediately respond to Retail Dive's request for comment. 
• The apparel retailer could file as early as this weekend, though the Wall Street Journal reported that the retailer's board hadn't signed off on a plan as of Thursday evening.
• The company is trying to secure $400 million to finance it through the court process, according to CNBC.

Dive Insight:

J. Crew's journey from preppy staple to a potential Chapter 11 case has been long and much discussed, and it has followed many of the same thorny pathways as apparel retail generally.

A J. Crew bankruptcy would come as little surprise to the industry. The company has appeared on every Retail Dive bankruptcy watch list since the first, in summer 2017. The company shares that distinction with Neiman Marcus, another (primarily) apparel seller reported to be close to filing for bankruptcy.

Both J. Crew and Neiman carry large debt loads, leftover from leveraged buyouts by private equity firms. For years both retailers have executed deals with lenders to buy time, without solving their underlying balance sheet woes. 

Now both have run into a market-wide cataclysm in the COVID-19 pandemic. In March, J. Crew announced it would temporarily close its entire physical footprint. That of course cuts off a primary revenue source for a company already pressed for cash. 

The retailer reported in March — before closing its stores — that it had just over $26 million in cash. The company also carries nearly $1.7 billion in long-term debt and had increased its borrowings under its asset-based loan facility. 

For fiscal 2019, the J. Crew brand's top-line sales fell 4%, a drag on the company's overall sales even as Madewell, long a bright spot for J. Crew, boosted sales by 14%. For the year, the retailer posted a $78.8 million loss, which represented significant improvement over the previous year.

An IPO of Madewell could have helped J. Crew's financial position in the short run, but plans were put on ice just before the pandemic upturned the industry and financial markets. 

Along its financial travails, J. Crew has seen instability in its executive ranks. Longtime CEO Mickey Drexler stepped down in June 2017, not long after the departure of Jenna Lyons from the top spot of the J. Crew brand. Drexler was replaced by James Brett, the previous head of West Elm. Brett left the job after just over a year. This year, after a protracted search, the company named former Victoria's Secret exec Jan Singer as its new CEO.

Like other retailers that are reported to be prepping for possible bankruptcy — J.C. Penney, Neiman Marcus and Lord & Taylor among them — J. Crew was vulnerable going into this year. But the pandemic has had a ravaging effect on retailers already in distress. Along with the liquidity strains that follow the temporary closure of stores, many of industry's distressed companies are tied to malls and apparel — areas already in decline. A crunch in discretionary spending, from the pandemic and millions of job losses, is accelerating consolidation that has been going on for years.