26 September 2020

Brooks Brothers Files for Bankruptcy Due to Coronavirus

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Brooks Brothers dressed the American business class in pinstripes for more than 200 years and survived two world wars and the shift to casual dressing. But it was no match for the coronavirus pandemic.

The closely held company, which is owned by Italian businessman Claudio Del Vecchio, filed for bankruptcy protection in Wilmington, Del., on Wednesday. One of the few brands to make clothes domestically, it plans to halt manufacturing at its three U.S. factories on Aug. 15 and will use the bankruptcy process to search for a new owner.

Brooks Brothers joins a parade of U.S. retailers seeking relief in bankruptcy court since March, including Neiman Marcus Group Inc., J.Crew Group Inc. and J.C. Penney Co. JCPNQ +2.22% Economic fallout from Covid-19 has also pushed high-profile companies in other industries into bankruptcy, including Hertz Global Holdings Inc. and Chesapeake Energy Corp. CHKAQ +3.64%

Mr. Del Vecchio blamed the pandemic for the company’s current troubles, saying in an interview on Wednesday that temporarily closing stores during the lockdowns greatly reduced revenue, yet the company still met its contractual obligations to workers, suppliers and other vendors. He said he wished that the government had provided a lifeline to larger retailers the way it did to small businesses.

“Through every era, we had challenges, but we were confident we would be able to manage through them,” he said. “Retailing has been changing a lot in the last four to five years, and we were in the process of adapting to that new environment. When coronavirus came, there was really no way to sustain things.”

While it seeks a buyer and restructures its debts, Brooks Brothers said it has secured a $75 million debtor-in-possession loan from WHP Global. WHP, backed by Oaktree Capital and BlackRock, is a brand-management firm that owns the Anne Klein and Joseph Abboud apparel brands.

Brooks Brothers was facing challenges before the health crisis forced nonessential retailers to temporarily close their stores. The company had about $1 billion in revenue in 2019, and about a quarter of its sales came from ecommerce. It has 500 stores around the world and roughly 200 in North America, after deciding to close about 50 locations because of the pandemic.

Corporate America had turned increasingly casual, and fewer men were buying suits. Once people started sheltering at home, they turned to even more casual attire, such as sweatpants.

As people begin to head back to the office, it isn’t known whether they will return to a more formal way of dressing.

“I’ve seen a growing trend toward more casual dress partly because that’s how our clients are dressing,” said Quyen Ta, a partner in law firm King & Spalding LLP’s San Francisco office. “I’ve met with general counsels of public companies who are in hoodies.”

Brooks Brothers hired the investment bank PJ Solomon last year to explore strategic options, including a possible sale, according to people familiar with the situation. It also received a $20 million loan from liquidation firm Gordon Brothers, these people said. The loan was from the firm’s financing arm, which is separate from the division that handles liquidations, one of the people said.

Brooks Brothers is expected to attract buyers, other people familiar with the situation said. Authentic Brands Group LLC, a licensing company that owns the Barneys New York and Sports Illustrated names, is a potential suitor, they said.

Other sellers of men’s work attire have also struggled since the pandemic. Tailored Brands Inc., TLRD +0.24% parent of Men’s Wearhouse and Jos. A. Bank, said in June that it has taken several steps to conserve cash, such as taking longer to pay landlords and suppliers. The company reported a 60% decline in sales in the quarter ended May 2. Last week, Tailored Brands skipped a bond interest payment.

Founded in 1818, Brooks Brothers, which pioneered ready-made suits, came of age along with the nation. It started selling its clothes before the Erie Canal opened and the California Gold Rush began. Its clothes have been worn by dozens of U.S. presidents, including Abraham Lincoln and Theodore Roosevelt, as well as tycoons ranging from the Astors to the Vanderbilts.

It introduced the first button-down-collar shirt in 1896, an idea a grandson of the founder got from watching a polo match in England. He noticed that the players’ collars didn’t flap in the wind, because they were buttoned down. It popularized other looks such as the reverse-stripe “repp” tie, a take on Britain’s regimental neckwear, as well as Harris Tweed and the Shetland sweater.

Robert Herbst, a 62-year-old lawyer, remembers his father taking him to buy a Brooks Brothers shirt, tie and blue blazer when he was about 7 years old. Later, when he joined the law firm White & Case LLP, he bought his first Brooks Brothers suit.

“It was the uniform,” said Mr. Herbst, who lives in Larchmont, N.Y., and is now the general counsel of several small companies. “Brooks Brothers was a way of life,” he said. “It represented a traditional, old-line way of dressing.”

Mr. Herbst said that although he has a closet full of Brooks Brothers suits he has been dressing more casually in recent years. “I used to wear suits five days a week, and that’s very rare now,” he said.

Even as other retailers moved production overseas, Brooks Brothers continued to manufacture a small portion of its suits, ties and shirts in three U.S. factories—in Haverhill, Mass., Garland, N.C., and Long Island City, N.Y. The factories produce roughly 7% of its finished goods, mainly suits, ties and some shirts.

As the move to dress more informally gained steam through the 1990s and 2000s, Brooks Brothers tried to adapt. In 2016, it introduced Golden Fleece, a line of casual clothes that included sweaters, jackets, sport shirts and slacks. But it faced competition from many upstarts. Today, tailored clothes account for about a fifth of its sales, with casual sportswear making up the rest, according to a spokeswoman.

Brian Ouellette of Clyde Hill, Wash., bought his first Brooks Brothers suit when he entered the PaineWebber & Co. training program in 1995. “My attire today is much more casual,” said the 48-year-old, who started his own company in 2010 that coaches financial advisers. “I’ll wear French cuff shirts with shorts and loafers in the summer.”

Brooks Brothers was acquired by the British retail chain Marks and Spencer Group MAKSY 0.83% PLC in 1988. It was sold in 2001 to Retail Brand Alliance Inc., which was controlled by Mr. Del Vecchio, whose father founded Luxottica Group SpA, the Italian eyeglass maker. It changed its name to Brooks Brothers Group Inc. in 2011.

Restoring Brooks Brothers has been a passion of Mr. Del Vecchio, who became enamored of the brand while growing up in Italy, according to a 2015 interview on the company’s website. Brooks Brothers was the first store he visited when he came to the U.S. at the age of 25. “As a frequent customer, I thought there were ways I could improve on quality,” Mr. Del Vecchio said in the interview.

He upgraded the fabrics, overhauled the supply chain and introduced new lines, including Black Fleece, a collection created by avant-garde designer Thom Browne that was discontinued in 2015. He also pushed the company to expand internationally. In 2001, Brooks Brothers’ only international market was Japan. Today, it has a presence in more than 70 countries.

Mr. Del Vecchio said he was unsure what he would do after Brooks Brothers is sold. “For now, I want to ensure a long life for this company.” he said.

Write to Suzanne Kapner at Suzanne.Kapner@wsj.com and Soma Biswas at soma.biswas@wsj.com.

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