‘Things unraveled’: How Joann went from Covid lockdown darling to post-pandemic flop

The retailer got its start in 1943 as Cleveland Fabric Shop and became Jo-Ann Fabrics after the company grew to 18 stores in 1963, according to the company. It then had unparalleled growth through the ‘60s, going public on the American Stock Exchange. The company had been working since 2016 to improve its digital and data capabilities such as through marketing assets, its CRM system, social media platforms and e-commerce capabilities, which then-president and CEO Wade Miquelon said helped spur success during the pandemic.

“We are reaping the fruits of these efforts and our strategy is clear moving forward,” Miquelon said in a letter to potential shareholders at the time. “We are enhancing and refreshing our existing locations with what we believe are exceptional assortments, service and experience. We are driving digital connectivity with our customers to increase engagement and accelerate omnichannel growth. We are expanding our digital presence into new markets and categories where we see tremendous share opportunity and we believe we have a compelling competitive advantage.”

The hot streak didn’t last. Beginning in the second quarter of 2021, the company reported net sales declines every quarter for the next two years before filing for bankruptcy in March 2024. The company emerged from bankruptcy in April 2024 but filed for bankruptcy again less than a year later this past January. Financial services firm GA Group now plans to acquire most of the company’s assets and wind down operations at all locations, Joann announced Feb. 23. After the first bankruptcy, the company faced many of the same macroeconomic challenges as other retailers in the crafts space but was also burdened with unanticipated inventory challenges and a mountain of debt.

“Things ended up worse than I thought, because after the first bankruptcy, it seemed like they had a plan and they were coming out of it without a lot of store closures,” said Cristina Fernández, managing director and senior research analyst for Telsey Advisory Group, which dropped coverage of the company in March 2024 due to a lack of interest from investors in anticipation of the second bankruptcy. “It was a little bit surprising that so quickly after the first bankruptcy, things unraveled.”

From an IPO to two bankruptcies

Leonard Green & Partners purchased the company in 2011 and owned it as a private company for a decade up until the IPO in 2021, when investors and executives had high hopes for the retailer coming out of Covid.

“They had a really great run during the pandemic; when people were stuck at home, they were looking for things to do, and arts and crafts was one of the things that could fill the time,” Fernández said. “At that point, it seemed like they would be able to hold on to some of those sales, but then, over time, they didn’t.”

In a court declaration filed in January as the company began Chapter 11 proceedings, interim CEO Michael Prendergast said the business was healthy in the post-Covid environment but struggled to service its $1 billion in debt, leading to the first bankruptcy.

Prendergast said that while the company believed the company had long-term potential with the new funding and reorganization, unanticipated inventory issues as well as consumer challenges with the effects of high inflation and interest rates had put the company back into an untenable debt position later in 2024.

He said inflation-fatigued customers tended to spend on essentials and low-cost goods as opposed to crafts and decor. These struggles left other retailers to cut prices. At the same time as Joann emerged from bankruptcy and was trying to right-size the business, Michaels announced it would lower prices on 5,000 items in its arts, crafts, DIY and home decor departments.

Additionally, some vendors ramped down or stopped production of key items for the retailer following the first bankruptcy, according to Prendergast, dropping in-stock levels by more than 10%. While in the filing Prendergast did not say what caused this, Fernández speculated vendors became concerned they wouldn’t get paid.

“We’ve seen that with other retailers,” she said, adding that some vendors will stop shipping goods to a retailer if they hear bankruptcy or liquidation is on the horizon. “Joann was on everyone’s watch list, only because they had emerged and didn’t close stores, and we knew sales were tight.”

Bad news for the crafting sector

The loss of Joann is a huge loss for the arts and crafts space, but especially suppliers and customers in the fabric niche, Abby Glassenberg, co-founder of Craft Industry Alliance, told Modern Retail. While Michaels and even Walmart have a stake in the fabrics business, Joann was unique in being a mass-market retailer focused mainly on quilting and sewing.

Glassenberg said some vendors have already had financial difficulty because of Joann’s first bankruptcy, which may have contributed to the inventory issues the company faced last year. “I think we’re going to end up seeing ripple effects across all of those vendors in a lot of different ways,” she said. “Over the next few years, we’re going to see more consolidation as more companies are forced to sell, and some companies are going to disappear entirely.”

As of the bankruptcy filing in January, Joann owed millions to prominent suppliers, including $7.5 million to Low Tech Toy Club LLC, the company that makes the popular The Woobles DIY crochet kits, and $5.2 million to sewing machine maker SVP Worldwide.

Additionally, Glassenberg said many younger people have been shopping for fabric at online marketplaces such as Missouri Star Quilt Company or Blackbird Fabrics, rather than Joann. But the closure of Joann removes an entry point for people on a budget or new to the hobby.

“It’s a really important part of the ecosystem,” she said. “On the flip side, without a Joann breathing down your neck in every major metropolitan area in the United States, some of these independent stores that are brick and mortar have a better shot, because they’re now the only shop in town.”