Bankrupt Craft Retailer Joann Inc. Is Closing 500 Stores -- What Should Its Landlords Do Next?
Craft retailer Joann filed for its second bankruptcy in two years last month and now >60% of its 800+ retail stores are closing; what are the options for its retail landlords?
This week craft and sewing retailer Joann Inc. announced plans to close as many as 500 stores while it navigates its second Chapter 11 bankruptcy in two years.
The Ohio retailer’s remaining 300+ Big Box stores may also be at risk of closure.
So what should the landlords of the Joann Inc. real estate do next?
The short answer is…maybe nothing at all.
Acquisitions of the Joann leases by other Big Box retailers could fill the soon-to-be vacated space with no involvement of — and at no cost to — landlords.
The acquisition of bankrupt retailer leases has been occurring with greater regularity:
Just last week ~250 of the 695 leases of two-time bankrupt retailer Party City attracted bids from Dollar Tree, Five Below and several other retailers
In 2024 Burlington, Ollie’s Bargain Outlet, Dollar Tree and others paid millions to assume dozens of leases from the bankruptcy estates of Big Lots, Conn’s and 99 Cents Only stores
Over 100 leases were acquired in the 2023 bankruptcy of Bed Bath and Beyond — including ~64 alone by Burlington
Acquisitions of the Joann leases could be a boon to its landlords:
Lease acquirers are responsible for “cure costs” to landlords — or any amounts owed by Joann when it filed bankruptcy.
And they are also immediately responsible for rent, insurance and other charges pursuant to the leases even prior to opening stores at the sites.
Additionally, the assumption of an existing lease results in no additional requirement by landlords to provide tenant improvements.
Even if the Joann leases do not sell at auction, replacement tenants may be eager to take the space.
Despite two bankruptcies in two years, many of the Joann stores have historically been profitable.
As recently 12 months ago Joann Inc. reported that:
~96% of its stores were profitable on a “4-wall” basis
~80% of stores generated contribution margin of >10%
Just ~4% of its stores were located in malls
~1/3 of its unprofitable sites were actually new stores in a sales ramp up period
Even when including its small number of unprofitable sites, Joann’s stores collectively generated a 16% contribution margin in the 12 months of operations prior to its March 2024 bankruptcy.
So who are the likely backfill candidates of the Joann real estate?
Well Joann Inc. was estimated to have an ~18% share of the ~$5 BB+ U.S. fabric, craft and sewing supply store market.
Its top brick-and-mortar competitors — Hobby Lobby and Michaels — also each have close to 20% of the market and may be particularly interested in the opportunity to absorb some of the Joann real estate (and market share).
In fact both Hobby Lobby and Michaels have a long history of backfilling real estate vacated by bankrupt retailers:
Hobby Lobby backfilled ~35 former Toys R Us stores, 17 vacated Sports Authority and at least 8 Bed Bath and Beyond stores that were closed in bankruptcy
In 2023 Michaels acquired at least 20 leases of bankrupt retailers including some from each of the lease auctions held during the Party City, Tuesday Morning, and Bed Bath & Beyond bankruptcies
Another likely taker of the Joann real estate?
Burlington Stores.
Burlington has doubled its store count over the past 8 years — largely from space vacated by bankrupt retailers.
In fact roughly half of Burlington’s net new store openings over the past 8 years have been in real estate vacated by just four bankrupt retailers:
Kmart, Bed Bath & Beyond, Toys R Us and Sports Authority.
Other off-price retailers — like TJ Maxx, HomeGoods, Ross Stores and Nordstrom Rack — have backfilled dozens of former Bed Bath & Beyond stores and are likely to have interest in the Joann real estate as well.
Even expanding small format grocery chains like ALDI, Grocery Outlet and Natural Grocers by Vitamin Cottage would be candidates to take the Joann space.
Another reason why Joann landlords may not be too concerned?
Much of the real estate vacated in previous retailer bankruptcies has been occupied relatively quickly:
95% of the ~460 Sports Authority stores were backfilled within 5 years of bankruptcy
Approximately ~90% of the 700+ Toys R Us stores that closed following its bankruptcy have been re-occupied
And even though Bed Bath & Beyond closed its remaining stores only 18 months ago, upwards of 2/3 of its ~800+ stores already have new tenants
The bottom line for the Joann Inc. landlords?
Some — perhaps many — may have their Joann lease sold to another retailer which will cost them nothing and result in uninterrupted payment of rent.
Others might get the Joann space back but could have a long list of potential backfill candidates that might even be willing to sign new leases at higher rents.
Either way, this time Joann’s retail landlords may have at least one advantage:
They won’t have to hang around for Chapter 33!