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May 6, 2020 – John Varvatos Enterprises, Inc. and two affiliated Debtors (“John Varvatos” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-11043. The Debtors, a "rock 'n roll" lifestyle brand men's clothing retailer, are represented by Derek C. Abbott of Nichols Arsht & Tunnell LLP. Further board-authorized engagements include (i) Clear Thinking Group as financial advisors, (ii) MMG Advisors, Inc. as investent bankers and (iiii) Omni Agent Solutions as claims agent.
The Debtors’ lead petition notes between 1,000 and 5,000 creditors; estimated assets between $10.0mn and $50.0mn; and estimated liabilities between $100.0mn and $500.0mn. Documents filed with the Court list the Debtors’ five largest unsecured creditors as (i) Class Action Claimants ($3.5mn disputed judgment), (ii) World Textile Sourcing ($1.3mn trade claim), (iii) Savino Del Bene Usa Inc ($1.2mn trade claim), (iv) Vornado 40 East 66th Street LLC ($1.1mn rent claim) and (v) Hughes Hubbard & Reed LLP ($854k professional services claim).
In a press release announcing the filing, John Varvatos announced that it had "reached agreements with an affiliate of Lion Capital LLP ('Lion'), an existing investor, under which the company will sell its business to Lion as a going concern in order to ensure the business’s long-term success.
Lion…has additionally committed to provide, subject to court approval, debtor-in-possession ('DIP') financing, which, when combined with the company’s projected cash flows, is expected to support its operations during the restructuring process.
Along with the rest of the luxury retail industry, John Varvatos Enterprises has been greatly impacted by the negative effects of the coronavirus pandemic….In response to the rapid and exponential spread of COVID-19 as well as relevant governmental orders, the company’s leadership took difficult yet prudent steps to temporarily close all store locations and conserve cash. The restructuring and related agreements represent the effort to continue the company’s legacy and to reposition the reorganized entity for long-term success."
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Zorda Declaration”), Joseph Zorda, the Debtors’ Chief Financial Officer, detailed the events leading to the Debtors' Chapter 11 filing.The Zorda Declaration provides: "The Debtors have experienced a number of factors that have negatively impacted their financial performance and cash flows over the last several years.
Beginning in 2015, the Debtors experienced consistent declines in retail and ecommerce revenues as a result of certain cost cutting measures that involved altering the brand’s clothing to attract customers in the mass market, which did not resonate with the brand’s existing customers. Additionally, certain of the Debtors’ wholesale partners ended their business relationship with or reduced their wholesale purchases from the Debtors. In some cases, the loss of these relationships was particularly detrimental to the Debtors’ financial performance. For example, in 2018, Nordstrom partially removed the John Varvatos brand from its stores, resulting in a $4.6m sales and $2.6m gross profit decline from 2018 to 2019.
Also, the Debtors sought to expand their store footprint and incurred significant costs in opening new stores with poor rental economies. In addition, the Debtors have historically pursued many business streams at the same time, including wholesale, full price retail, outlet retail, ecommerce, international distribution and licensing. Even though the company attains healthy revenue streams, the overhead required to manage these initiatives, coupled with retail stores’ declining performance and increasing rental costs, caused the business to sustain continued losses.
At the end of 2019, the Debtors hired a new CEO who, together with John Varvatos, was tasked with bringing the company back to profitability. The Debtors’ new team revitalized the product, reenergized their retail relationships, shaped a plan to reduce overhead costs for the ongoing businesses, and refocused the Debtors’ efforts on growing their ecommerce business. The Debtors’ strategy began to bear fruit in early 2020.
The unprecedented, exponential spread of the coronavirus disease COVID-19 throughout the United States, however, along with the resulting, state-imposed limitations and prohibitions on non-essential retail operations destroyed the Debtors’ blossoming success, having a debilitating effect on the Debtors’ business and employees. On March 18, 2020, the Debtors were forced to temporarily close of all of their U.S. and Canadian store locations, drastically affecting the Debtors’ retail business.
About the Debtors
According to the Debtors:"John Varvatos Enterprises is a global lifestyle brand launched in 2000 with a collection of tailored clothing and sportswear. John Varvatos now represents an entire men’s lifestyle that includes footwear, bags, belts, eyewear, jewelry, fragrances, the John Varvatos Star USA collection, and Bootleg by John Varvatos. John Varvatos encompasses a modern, rebel edge while staying true to our artisan roots. Visit us at johnvarvatos.com or join us on social media at @johnvarvatos.
The Zorda Declaration adds: "John Varvatos is a globally recognized luxury menswear brand that fuses contemporary style with a 'rock n’ rol'” culture. Mr. Varvatos himself – the legendary designer who began his creative calling with design roles at Ralph Lauren before being appointed as head of menswear design at Calvin Klein in 1990 – founded the brand in 2000, which has since become a premier American lifestyle menswear collection, combining distinctive fabrics, heritage-inspired silhouettes, and artisanal details to embody a modern classic aesthetic with an edge. John Varvatos is a globally recognized luxury menswear brand that fuses 4.contemporary style with a “rock n’ roll” culture. Mr. Varvatos himself – the legendary designer who began his creative calling with design roles at Ralph Lauren before being appointed as head of menswear design at Calvin Klein in 1990 – founded the brand in 2000, which has since become a premier American lifestyle menswear collection, combining distinctive fabrics, heritage-inspired silhouettes, and artisanal details to embody a modern classic aesthetic with an edge."
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