Local Business

Bankruptcies, Layoffs Deplete the Retail Industry

At the beginning of 2020 several brick-and-mortar chain retailers were struggling, trying to restructure debt or find new lenders while dealing with plummeting revenues. The Covid-19 pandemic has closed stores and effectively made those efforts pointless.

A rash of bankruptcies has ensued. It’s a more lethal version of the much-discussed retail apocalypse. Even retailers that were considered healthy are in danger of running out of operating cash — layoffs and furloughs are the results.

Bankruptcy Filings

  • Home goods retailer Pier 1 filed for Chapter 11 bankruptcy on February 17, before the pandemic outbreak in the U.S.
  • Modell’s Sporting Goods filed for Chapter 11 on March 11.
  • Retailer J.Crew filed for Chapter 11 on May 4. The company also said it had reached a deal with its lenders to convert about $1.65 billion of debt into equity.
  • High-end department store Neiman Marcus filed for Chapter 11 bankruptcy on May 7 with plans to restructure.
  • Stage Stores, which owns Goody’s, Palais Royal, Bealls, Peebles, and Gordmans, filed for Chapter 11 bankruptcy on May 10. The company stated that it would liquidate if it cannot find a buyer. Its plan called for the conversion of all of its Bealls, Palais Royal, Peebles, Stage, and Goody’s department stores to its off-price Gordmans brand.
  • U.K. retailer Laura Ashley went into administration (the British equivalent of bankruptcy) in March. An American restructuring company brought it out of administration in April, but there have since been store closings, layoffs, and furloughs.
  • Debenhams, a U.K. department store group, now owned by its lenders who took it out of administration in 2019, is again trying to protect itself from creditors by going into administration. It will likely reopen only a small percentage of its stores.
  • Two other U.K. fashion chains, Oasis and Warehouse, went into administration in April.

Other Vulnerable Chains

J.C. Penney, which has experienced declining sales for several years, missed a debt payment, this one a $17 million interest installment on its senior secured loan due May 7, the company disclosed in a filing with the U.S. Security and Exchange Commission. It also missed a $12 million payment in April. Financial analysts peg the retailer as one of the most likely to file for bankruptcy in the next few weeks.

Nordstrom announced the permanent closure of 16 stores and said it would focus on digital sales. Gap Inc. stated that it had stopped paying rent on all its stores and would not reopen some of them. The company owns The Gap, Old Navy, Banana Republic, and Athleta.

Forever 21 had already filed for Chapter 11 bankruptcy and was in the midst of a restructuring when the pandemic started. Its comeback may be derailed.

Sears and Kmart have already closed hundreds of stores and filed for bankruptcy in 2018. Neither retailer has regained a sound financial footing, and, with only 182 surviving stores, the future is precarious.

National chain stores are mostly located in malls. The effects could be devastating to many of these shopping venues. Some chains have stopped paying rent. Real estate consulting firm Green Street Advisors predicts that more than half of the department stores located in U.S. malls will close by the end of 2021. J.C. Penney stores comprise 19 percent of mall anchor space. Macy’s accounts for 18 percent.

Digitally Native Brands

Digital brands that have opened physical stores are in the same situation as brick-and-mortar chains: Stores are closed, and employees are being dismissed or furloughed. Even strictly digital companies in vulnerable categories are seeing a decline in sales, especially those with physical stores.

Luggage provider Away has taken an especially big hit as few people are traveling. Sales have fallen 90 percent over the past two months, according to the founders. Away has closed its 10 retail stores, furloughed half of its employees, and laid off another 10 percent.

In the past few weeks, Rothy’s (shoes), Everlane (apparel and shoes), ThirdLove (lingerie), and Rent the Runway (apparel rental) have all announced layoffs and furloughs. Rothy’s opened a store in early March in Manhattan that is now temporarily closed, according to the company’s website. Its shoes are also sold in its stores in California and at Nordstrom locations, as well as online.

Similarly, Everlane’s four stores in California and New York are now temporarily closed. Rent the Runway has four stores, in California, Illinois, and New York, which all temporarily closed on March 16.

U.S. Unemployment

The recently released monthly report from the U.S. Bureau of Labor Statistics revealed that U.S. total nonfarm payroll jobs fell by 20.5 million in April, and the overall unemployment rate rose to 14.7 percent — the highest rate and the largest month-over-month increase since the data was first collected in 1948. The number of unemployed persons rose by 15.9 million to 23.1 million in April. The leisure and hospitality industry suffered the largest losses at 47 percent or roughly 7.65 million jobs.

Retail jobs declined by 2.1 million. Apparel and accessories stores lost 740,000 employees. However, general merchandise stores, which include warehouse clubs and supercenters, gained 93,000 jobs.

Many chains will likely not reopen all stores, permanently eliminating those retail positions. People who have not purchased goods online are now doing it out of necessity. Many are finding it to be a pleasant experience.

According to a survey of brands and retailers by marketing services firm Bluecore, sales at digital-only brands increased 53 percent in April 2020 compared with April 2019. Digital-only brands enjoyed increases of 53 percent and 38 percent in first- and second-time buyers, respectively. It may be difficult for brick-and-mortar retailers to lure those shoppers back.

Update, May 16, 2020:  J.C. Penney filed for Chapter 11 bankruptcy protection on May 15 and said it would permanently close some of its 846 locations. The 118-year-old chain department store has been struggling for several years, well before the Covid-19 pandemic forced it to temporarily close all of its stores and furlough most of its 90,000 employees. It has nearly $4 billion in debt and hasn’t turned a profit since 2010. The company said it had secured $900 million to fund bankruptcy proceedings.

Marcia Kaplan
Marcia Kaplan
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