Bankruptcy. An incurable symptom?

What is the lone brand to expect?

retail giants of yore and present alike are filing, or preparing to file, for bankruptcy.

Shivers. If retail giants of yore and present alike are filing, or preparing to file, for bankruptcy – what is the lone brand to expect? Expectation without understanding is usually uninformed anxiety, so let’s attack this notion with some information on the process of bankruptcy itself and how to avoid it altogether. 

Yes - J. Crew, JCPenney, and Sears are either filing or in the consultation process of filing their Chapter 11s. What does this mean? This refers to the United States bankruptcy code 11. Corporations usually file a Chapter 11 if they need time to restructure their leverage (debt). This gives them a “fresh start” in a not-so-savory way. It may sound easy, but filing for bankruptcy is more expensive than you think, and truly buried in paperwork and processing. These corporations have in-house legal teams and hire outside consulting firms to streamline the process, as they seep money that could have been used repaying debts. The businesses usually do remain active as they repay these debts.

In other terms, bankruptcy is an investment in and of itself. 

You may have also heard of Chapter 7 and 13. Mostly used by smaller organizations and individuals, these offer a different approach to debt liquidation, often much more painfully and directly as you usually do not have a team of lawyers as a buffer to the processes. Chapter 7 does not require you to provide a payment plan and stops collection, however you would need to liquidate or sell your assets to pay back as much as you can. On the other hand, Chapter 13 would structure a single repayment plan which would give you 3 or 5 years to pay back your debt. It is important to note that all of these impact your credit and usually not all of your debts will be forgiven.

Phew. Now – how to avoid this situation altogether? If we look at the common thread of companies applying for Chapter 11, we notice a lack of identity, not just financial mismanagement. 

Mark Cohen, director of retail studies at the Columbia Business School stated that, “The retailers who were wandering around aimlessly pre-pandemic are going to be substantially less likely to muddle through than they were before." 

A second clear sign is the insurmountable pile of debt. Of course, in a debt driven economy, large corporations borrow without regard, letting the presumably greater tomorrow pay for it. Well, tomorrow arrives in a not-so-shiny state, and voila – bankruptcy. 

We can discern some clear-cut cures for this: find your identity and manage your money.

There really aren’t many secrets to the market, just some pills are harder to swallow than others. 

Often, we discuss sustainability in form of new materials, ethical practices etc. But, the most sustainable product we have is our brands identity. And an obligation to that identity is to manage it correctly. Ask yourself, do I actually know how much I am spending? Am I writing down a unique budget month to month, or just letting some online platform handle it? What am I spending that money on? Does each item bring value to my brand? After you have written down your actual state of affairs, you might think, “Now what?” Well, the answer is obvious more often than not. The unnecessary becomes clear, and the path less vague. 

You can compare your revenue and expenses, along with your debt. Are you bringing enough revenue to cover both, or just letting the greater tomorrow pay for the rest? Some excellent tools to help you track your spending are EveryDollar and Mint. Remember, these are here to help you track and manage, not do the job for you. 

Besides spending and earning, there are tools which help you track your debt management as well. A noteworthy approach was developed by Dave Ramsey, a radio host and author. It’s called the Debt Snowball, and it’s referenced in his book Total Money Makeover. 

Revenue should not be the only goal, as the other two get mismanaged. However, we can stabilize revenue through diversification of its sources. In Harvard Business Review’s report titled The Future of Shopping,  Darrell K. Rigby illustrates omnichannel retailing. “The name reflects the fact that retailers will be able to interact with customers through countless channels—websites, physical stores, kiosks, direct mail and catalogs, call centers, social media, mobile devices, gaming consoles, televisions, networked appliances, home services, and more. Unless conventional merchants adopt an entirely new perspective—one that allows them to integrate disparate channels into a single seamless omnichannel experience—they are likely to be swept away.” 

Find your identity, track and manage finances, and you have provided a vaccine for bankruptcy. 

Andreea Diaconu, Amber Valletta, Carolyn Murphy, Liya Kebede, and Erin Wasson for J.Crew Photo: J.Crew