John Varvatos, a men's fashion brand favoured by rock stars and celebrities such as Iggy Pop and Ben Affleck, sought bankruptcy protection from creditors as the fallout from the Covid-19 pandemic derailed a corporate comeback effort.
The New York-based company filed for Chapter 11 bankruptcy, which protects it against further creditor claims, as part of a plan to sell itself for an undisclosed amount to an affiliate of Lion Capital, one of its creditors. Varvatos listed more than $140 million (Dh514m) of debt in court filings in Delaware on Wednesday.
Mr Varvatos gained experience at fashion lines such as Ralph Lauren and Calvin Klein before starting his own company. He'll remain as chairman and chief creative officer of the reorganised company, according to the court filings.
The designer started his namesake brand in 2000, "combining distinctive fabrics, heritage-inspired silhouettes and artisanal details to embody a modern classic aesthetic with an edge", Joe Zorda, the company's chief financial officer, said in the filings. The 30-store chain's headquarters is in Manhattan. All the stores are currently closed due to the Covid-19 outbreak.
Mr Varvatos has dressed some of the music world's top acts including Bruce Springsteen, Tupac Shakur, Bob Dylan, Iggy Pop, Alice Cooper, Cheap Trick, ZZ Top, Dave Matthews, The Roots and Green Day.
Mr Varvatos's company started hitting some off-key notes in 2015 when managers put in place "cost-cutting measures that involved altering the brand's clothing to attract customers in the mass market, which didn't resonate with the brand's existing customers", Mr Zorda said in a filing.
In 2017, Mr Varvatos sought to sell the chain to Authentic Brands Group – which owns Frederick's of Hollywood – but Lion Capital, the company's controlling investor – prevented the deal, according to the New York Post.
Things got worse three years later when Nordstrom removed some of Mr Varvatos's brands from its stores, resulting in a $2.6m gross profit decline from 2018 to 2019. The company launched an internal reorganisation, bringing in new management and pushing landlords to cut lease payments, Mr Zorda said.
The reorganisation was showing promise until the coronavirus epidemic hit earlier this year, Mr Zorda said. The company was forced to close all of its stores on March 18 and laid off more than 200 workers, 76 per cent of its workforce.
While Varvatos is selling some merchandise online, revenue from that stream isn't enough to pay debts as they come due, including rents totalling approximately $2.1m per month and the majority of the inventory deliveries it received for the spring 2020 selling season, Mr Zorda said.
Mr Varvatos shopped the company around and L/H Cayman – the Lion Capital affiliate – came in with the best bid, Mr Zorda said. That offer must still be approved by US Bankruptcy Judge Mary Walrath.
