When Brooks Brothers emerges from Chapter 11 bankruptcy and reorganizes under new ownership many of its 250 retail stores will almost certainly vanish in an attempt to cut costs and move distribution of its products to cheaper and possibly more efficient online sales as opposed to the old-fashioned, in-person experience customers received during the company's 200-year existence.
Also on the chopping block: Brooks Brothers' three US factories in New York, Massachusetts and North Carolina. While all the likely bidders will slash the brand's retail store footprint, some may opt to keep the factories as a way to convince the bankruptcy courts to look beyond the initial "stalking horse bid" made Thursday night by the Sparc Group LLC, a joint venture between Authentic Brand Groups and real estate firm Simon Property Group.
The bid is known as a "stalking horse" because even though it was accepted by current management under the bankruptcy process it merely sets a floor in the price of the company and allows other interested parties to enter the bidding. Sparc's bid valued Brooks Brothers at $305 million, but when debt is considered, the equity value of the enterprise is closer to $115 million, according to people with knowledge of the matters. The company recently announced it would be laying off workers at its U.S. factories in an effort to reduce costs.
One potential bid being prepared by Solitaire Group’s CEO David Jackson and private equity executive Jackson Eisenpresser will also likely value the company at around $300 million but could seek to compete with others by promising to maintain a significant US presence — possibly keeping more US stores and factories open, people with direct knowledge tell FOX Business.
Jackson notably was chief executive of Dubai-based Istithmar World, which owned high-end retailer Barneys from 2007 to 2012. Jackson also attempted a bid when Barneys was up for auction again last year, and along with Eisenpresser, has been meeting with Middle Eastern sovereign wealth funds for additional financing.
The partnership has also been cobbling together a management team for the new company if it does bid and win the contest that will include clothing store veteran Peter Rizzo, who was president of luxury department store Bergdorf Goodman, these people add.
People close to Jackson say his plan is to keep the Brooks Brothers franchise intact and continue to manufacture clothes independently of other brands; this differentiates him from other PE firms that may plan to fold it into another brand while still using the Brooks Brothers label.
Another bidder in the mix is investment company WHP Global, which manages brands including Joseph Abboud and Anne Klein. It’s unclear what their plans for the brand are at this point or if they will close Brooks Brothers stores or factories.
In a statement to FOX Business, a WHP spokesperson said, “It’s early innings in the Brooks Brothers bankruptcy sale process. The next key date is the auction. Our company, WHP Global, backed by funds managed by Oaktree Capital & BlackRock, is a bidder. We are big believers in the power of the Brooks Brothers brand, the global footprint and the management team. We’re looking forward to competing at the auction – that’s when the future of Brooks Brothers will be determined.”
A representative of Solitaire had no comment.
“Unlike 2008, we won’t see the same rapid recovery" in the economy that will help the struggling retail sector, Eric Snyder, partner at Wilk Auslander and chairman of the firm’s bankruptcy department, told FOX Business. “It’s not a sickness, it’s a baseball bat to the head" of the US consumer.
At issue for potential bidders is not just the closing of retail locations, but also whether to keep production in the US. One of Brooks Brothers’ distinguishing factors has been that its clothes are made in America. But now, as cost-cutting becomes a preeminent concern, the three US factories that employ around a thousand people may be forced to close.
Sparc will keep around 125 of the more than 250 US stores open, according to people with direct knowledge of the matter but it’s unclear what it will do with the factories. Other bidders are said to be formalizing their plans for offices and factories.
As the court hears various offers for the storied brand, it may consider not just the price but also the business plans these companies will enact — namely how many retail and factory locations will be kept open and how many jobs will be saved. The factories employ about 400 people out of a total of 4,000 Brooks Brothers employees.
Ultimately, it’s up to the bankruptcy judge hearing the case to decide which bid is best. A number of other players are jockeying to figure out how to beat this “stalking horse,” or opening, bid.
Brooks Brothers, as first noted by FOX Business, filed Chapter 11 bankruptcy for reorganization in a Delaware Court on July 8. Judge Christopher Sontchi set Aug. 5 for the day other offers can be placed and Aug. 11 for the hearing process to commence.
Founded in 1818, the fabled brand is part of the fabric of American retail history — outfitting 41 of the 45 U.S. presidents from James Madison to Barack Obama. Most recently, President Donald Trump wore a Brooks Brothers suit on his Inauguration Day.
Despite its storied reputation, Brooks Brothers is in a slump — with company sales hovering around $1 billion since 2017 as casual clothing and athleisure become more acceptable in the workplace. Analyst estimates suggest sales will be down 30 percent this year, as the pandemic recession further erodes sales. The company in the past has said it won't produce a profit until 2022.
Brooks Brothers joins others in the troubled retail sector. Neiman Marcus, J. Crew and Lucky Brand have filed for bankruptcy since the outbreak of coronavirus and the lockdowns that followed.
Despite its troubled finances and problems reaching younger consumers Brooks Brothers is seen as a valuable brand among people in older demographics with higher incomes, which is why it continues to attract investors, people close to the bidding process say.