Tailored Brands is expected to emerge from bankruptcy later this month as a leaner company with a smaller real estate footprint and a greater focus on digital offerings to augment its brick-and-mortar footprint.
The owner of Men’s Wearhouse and Jos A. Bank received approval Friday from a federal bankruptcy judge in Houston to move forward with its restructuring plan. The plan confirmation comes at a critical moment before the holiday shopping season, when many retailers are counting on Christmas shoppers to make up for lackluster sales in the pandemic. The retailer, with a split headquarters between Fremont, California, and Houston, had more than 1,400 locations in North America when it filed for bankruptcy protection in August.
As has become common in retail bankruptcy cases in the pandemic, landlords with rejected leases are likely to lose thousands of dollars where Tailored Brands has shut stores. The case is a reminder of just how vulnerable landlords are in the sea of bankruptcy cases washing over the retail sector.
“Landlords are essentially taking one of the largest hits in this case. They are not only losing a tenant, but now they are faced with having to refind a new tenant, which is an uphill battle in this enviornment,” said Eric Horn, a partner at the New York law firm A.Y. Strauss LLC, who represented a landlord with a rejected lease in the case.
A review of rejected leases by CoStar News shows that Tailored Brands is closing or already has closed at least 273 stores, many in high-profile locations and mostly under the Jos.A. Bank brand. A Tailored Brands spokeswoman declined to answer whether there would be any additional retail store closures after the bankruptcy is complete, but earlier this year, the company said it could close up to 500 stores.
Landlords who own the stores where leases were rejected will get a negligible amount compared to what they owed, said Horn. Under the plan, landlords with rejected leases, as unsecured creditors, would get a small percentage of what they are owed or they could take a small equity stake in the company, he noted, citing a disclosure statement filed in bankruptcy court. A landlord with a rejected lease who was owed $100,000 could get as little as $1,003 under the plan, Horn said.
Meanwhile, landlords of properties where Tailored Brands plans to keep stores open are in a much better position, Horn added, because the retailer must pay so-called cure claims prior to assuming a lease at those locations. However, even landlords where stores are expected to remain open often have to battle for the amount they believe they are owed. Several landlords have filed limited objections trying to protect how much they are owed in the case. These types of limited objections are common in bankruptcy cases and are usually settled outside court, though, and typically don’t stop the bankruptcy plan from proceeding, Horn said.
Some landlords have already reached deals with Tailored Brands. Simon Property Group, for example, said in court filings that it had reached an agreement with Tailored Brands to resume leases at dozens of locations — otherwise Tailored Brands could be on the hook for $4 million in cure claims plus attorney fees.
Simon Property Group had at least 55 leases with Tailored Brands at the time of its bankruptcy filing, according to the records. And now, Simon also is expected to be part-owner of a key competitor to Tailored Brands — Brooks Brothers — which it agreed to buy for $325 million out of bankruptcy in partnership with Authentic Brands Group. Brooks Brothers, Tailored Brands and the owner of Ann Taylor were all victims of the casualization of the workplace and canceled events cutting into sales of formal wear during the pandemic.
In addition to shuttering hundreds of stores, Tailored Brands has spent the past several months reconfiguring many of its existing locations to support expanded e-commerce sales. The company implemented a new “buy online, pick up in store” offering and contactless payments. In September, the company unveiled a new “Next Generation Store” concept for Men’s Wearhouse outside of Houston, which includes a more modern store format, contactless tailoring and other digital offerings meant to appeal to a younger audience. The Next Gen concept could become a model for future Men’s Wearhouse moving forward, with another location planned to open in near Atlanta in December.
“These and other actions taken while in Chapter 11 are the continuation of a strategic transformation that started well before COVID-19 and will position us to compete and succeed for the long term,” Tailored Brands President and Chief Executive Officer Dinesh Lathi said in a statement.
The bankruptcy process is expected to wipe away $686 million of funded debt from its balance sheet. The capital structure of the reorganized company is expected to consist of a $430 million asset-backed loan facility, a $365 million exit term loan and $75 million of cash from a new debt facility to support ongoing operations and strategic initiatives, according to a statement Friday from Tailored Brands.
The company had 1,274 retail locations in the United States and 125 stores in Canada when it filed for bankruptcy, according to court documents. That encompassed 9 million square feet of retail space and about $416 million in occupancy costs, wrote Holly Etlin, Tailored Brands’ chief restructuring officer, in court filings. The retailer also owned 1.8 million square feet of distribution space and leased another 6 million square feet of distribution space, she said.