I had a brief side-hustle at a local Joann store a couple years ago – right before the bottom fell out. As a long-time shopper and a former employee, I have been most interested in the trajectory of the bankruptcy and its eventual, and if we are being honest, expected, ending.

On my other blog site, I have been experimenting with AI to see what perspectives it might generate around topics there. It was a FASCINATING experience, so I thought I would try something similar here.

I primarily use Microsoft Co-Pilot, and not ChatGPT or Google Gemini – but the LLM* behind each are likely similar enough that the results would be comparable.

When using AI in this way, we begin with a prompt. Think of a prompt as going to the library as a kid (pre-internet days) and asking the librarian for help in finding information for a book report. Imagine that this librarian takes us at our word, and doesn’t ask questions before going to find what we have asked about, so we need to make sure any caveats are made clear. I began with a general inquiry about the bankruptcy:

Summarize the reasons for the bankruptcy and final closure of Joann stores in the USA. Include details as available about private equity and its intended goals and how that may or may not have had an impact on the demise of Joann stores.

Here was the response:

Joann stores, a long-standing fabric and craft retailer, ultimately faced bankruptcy and closure due to a combination of financial mismanagement, market shifts, and the impact of private equity ownership.

Reasons for Bankruptcy and Closure:

1. Debt Burden from Private Equity Ownership – Joann was acquired by private equity firm Leonard Green & Partners in 2011 for $1.6 billion. The leveraged buyout saddled the company with significant debt, which continued to grow over the years. By 2024, Joann reported over $1 billion in debt, making it difficult to sustain operations.
2. Market Challenges – The rise of e-commerce and competition from online retailers like Amazon made it increasingly difficult for Joann to maintain profitability. Specialty retail chains with large-format stores struggled to adapt to changing consumer habits.
3. Failed Restructuring Efforts – Joann attempted to restructure its finances, including filing for Chapter 11 bankruptcy twice within a year. The first bankruptcy in early 2024 aimed to reduce debt and secure new financing, but the company was unable to recover. The second bankruptcy in January 2025 led to store closures and liquidation.
4. Pandemic-Era Boom and Subsequent Decline – During the COVID-19 pandemic, Joann saw a temporary surge in sales as crafting became popular. However, the company failed to sustain this momentum, leading to financial instability.
5. Private Equity’s Role – Critics argue that Leonard Green & Partners prioritized short-term financial gains over long-term sustainability. The firm extracted fees and dividends while increasing Joann’s debt burden, a strategy that has led to the downfall of other companies in its portfolio, such as The Container Store and Prospect Medical Holdings.

Ultimately, Joann’s closure reflects broader challenges faced by private equity-backed retailers, where aggressive financial strategies often lead to unsustainable debt and eventual bankruptcy. The company’s failure is part of a larger trend of retail closures in 2025, with many legacy brands struggling to survive in an evolving market.

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The answer inspired me to ask a follow-up question:

Are there any rational options that could have been taken to prevent the current outcome?

Here was the Co-Pilot response:

Joann could have pursued several strategies to avoid bankruptcy and closure:

1. Debt Restructuring – The company attempted to reduce its debt burden through Chapter 11 bankruptcy filings, but a more aggressive restructuring earlier on—such as negotiating better terms with creditors or refinancing debt—might have provided more stability.
2. Operational Efficiency – Joann struggled with inventory management and cost control. Streamlining operations, optimizing supply chains, and reducing overhead costs could have improved profitability.
3. E-Commerce Expansion – The rise of online shopping hurt Joann’s brick-and-mortar stores. A stronger digital presence, better online marketing, and improved customer experience could have helped retain customers.
4. Private Equity Strategy Shift – Leonard Green & Partners extracted fees and dividends while increasing Joann’s debt. A more sustainable approach—prioritizing long-term growth over short-term financial gains—could have prevented financial instability.
5. Store Optimization – Instead of maintaining over 800 locations, Joann could have closed underperforming stores earlier and focused on profitable regions.
6. Alternative Ownership Models – Seeking new investors or transitioning to a cooperative model could have provided financial relief and a more sustainable business structure.

Ultimately, Joann’s downfall was a mix of financial mismanagement, market shifts, and private equity decisions. A combination of these strategies might have helped the company survive.

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Lastly, I asked what we could learn from the entire debacle, specific to private equity.

What can we learn about the good and the bad of private equity in similar circumstances?

Co-Pilot response:

Private equity can be a double-edged sword in retail and other industries. Here’s a breakdown of the good and bad aspects, particularly in cases of bankruptcy and financial distress:

The Good:

1. Access to Capital – Private equity firms provide struggling companies with much-needed funding, allowing them to invest in growth, technology, and operational improvements.
2. Strategic Expertise – Many private equity firms bring experienced leadership and strategic guidance, helping businesses streamline operations and improve profitability.
3. Turnaround Potential – Some retailers have successfully rebounded under private equity ownership by cutting costs, optimizing store locations, and shifting toward e-commerce.
4. Long-Term Value Creation – When managed responsibly, private equity can help companies expand, innovate, and become more competitive in the market.

The Bad:

1. Debt Burden – Many private equity acquisitions involve leveraged buyouts, where the company takes on significant debt. If profitability declines, this debt can become unsustainable, leading to bankruptcy.
2. Short-Term Profit Focus – Some private equity firms prioritize extracting dividends and management fees rather than ensuring long-term stability, which can weaken a company’s financial health.
3. Asset Stripping – In some cases, private equity firms sell off valuable assets (such as real estate) to generate quick returns, leaving the company with higher operating costs and reduced financial flexibility.
4. Higher Bankruptcy Rates – Studies show that private equity-backed retailers are more likely to file for bankruptcy compared to non-private equity-owned businesses, often due to excessive debt and cost-cutting measures.

Key Takeaway:

Private equity can be beneficial when firms focus on sustainable growth and operational improvements. However, when leveraged buyouts and aggressive financial strategies take precedence, companies often struggle to survive. The retail sector has seen numerous bankruptcies linked to private equity ownership, highlighting the risks of excessive debt and short-term financial tactics.

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Given the fact that private equity (PE) has, in some cases, turned other retailers around, I think it’s important that we not fall into the “Private Equity is always a bad idea” camp – at least not without additional information.

Apparently Petco, Dollar General and BJ’s Wholesale Club were all bought out by private equity and turned around. While I have been a critic of private equity as it related to Joann’s demise, in quiet moments I have had to admit that there were clear signs that the same old model for the company was not going to continue to work.

I asked Co-Pilot to outline the demographic and market trends that were most impactful to Joann’s eventual demise, and here was the response:

Several demographic and market trends played a significant role in Joann’s bankruptcy and eventual closure:

Demographic Trends

1. Aging Customer Base – Joann’s core customer demographic consisted largely of older consumers who engaged in traditional crafting and sewing. As younger generations shifted toward digital hobbies and DIY projects that required fewer physical materials, Joann struggled to attract new customers.
2. Income Disparities – Analysis of Joann’s trade areas showed that its customer base had a median household income between that of Michaels (higher-income shoppers) and Hobby Lobby (lower-income shoppers). With economic pressures rising, lower-income shoppers increasingly turned to discount retailers or online alternatives.
3. Post-Pandemic Behavior Shifts – During the COVID-19 pandemic, crafting saw a surge in popularity, but this trend declined as people returned to work and social activities. Joann failed to retain many of the new customers it gained during the pandemic.

Market Trends

1. E-Commerce Competition – Online retailers, including Amazon and specialty craft suppliers, provided more convenience and competitive pricing, drawing customers away from Joann’s physical stores.
2. Big-Box Retailer Encroachment – Superstores like Walmart and Target expanded their craft and fabric sections, offering lower prices and one-stop shopping convenience. Between 2019 and 2024, the percentage of Joann customers who also shopped at Walmart and Target increased, highlighting growing competition.
3. Rival Craft Stores Gaining Market Share – Hobby Lobby and Michaels benefited from Joann’s decline, with nearly half of Joann’s customers also shopping at these competitors in 2024. As Joann struggled, these retailers captured more of the crafting market.
4. Failure to Modernize – Joann remained tied to outdated sales and distribution formats, failing to adapt to unified commerce strategies that integrate online and in-store experiences. This lack of innovation contributed to its downfall.

Ultimately, Joann’s bankruptcy was driven by a combination of shifting consumer behaviors, increased competition, and an inability to modernize its business model.

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I felt for a long time that Joann was still living in and marketing to a shrinking (& aging) demographic. I say “shrinking” because right now, Millennials are the generation driving the economy, and Gen Z is coming up behind them fast. They have grown up with fast fashion, and parents that worked multiple jobs just to pay the rent and keep the lights on. The only younger shoppers I ever saw at the cutting counter were those buying costuming fabric or picking up a 1/2 yard for a mandatory school (Family Consumer Science) project. When I was a kid, it was MUCH MORE AFFORDABLE for my mother to make my school dance dresses than to go to the (new) mall in town and buy one. That is NOT the case today, and that reality is part of the story of Joann’s demise.

As I suggested in my previous blog post on this site, I am looking at the end of the Joann era through the lens of my own behaviors, and choosing to see it as an opportunity to pivot to better habits as it relates to my crafting, crocheting, knitting and sewing interests.

May everyone – especially the displaced Joann employees – find a better tomorrow at the end of Joann’s rainbow.

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(C) 2025 Fiber Harmony

* LLM = large language models, which are the foundation of tools like Microsoft Copilot, ChatGPT, and Google Gemini. They process and predict language patterns to assist with various tasks, from answering questions to generating creative content.