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 fresh creditors while dealing with plummeting earnings. The Covid-19 pandemic has closed stores and economically made those efforts .

A rash of bankruptcies has ensued. It is a more deadly form of this much-discussed retail apocalypse. Even retailers that were considered healthy are in danger of running out of operating cash — layoffs and furloughs would be the results.

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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 to 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 said it would liquidate if it can not find a buyer. Its strategy 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 to authorities (the British equivalent of bankruptcy) in March. An American restructuring company brought it from authorities in April, but there have since been store closings, layoffs, and furloughs.
  • Debenhams, a U.K. department store group, currently owned by its creditors who obtained it from authorities in 2019, is attempting to protect itself from creditors by entering authorities. It will most likely reopen only a tiny proportion of its shops.
  • Two other U.K. fashion chains, Oasis and Warehouse, went into administration in April.
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Other Vulnerable Chains

J.C. Penney, that 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. Furthermore, it missed a $12 million payment in April. Fiscal analysts peg the merchant one of the most likely to declare bankruptcy over the next few weeks.

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

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

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

National chain stores are largely found in malls. The effects could be devastating to many of the shopping areas. Some chains have stopped paying rent. Real estate consulting firm Green Street Advisors predicts that over half of these 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.

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Digitally Native Brands

Digital brands that have opened physical shops are at the same scenario as brick-and-mortar chains: Shops are closed, and employees are being dismissed or furloughed. Even strictly digital companies in vulnerable groups are seeing a reduction in earnings, especially those with physical stores.

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Luggage provider Away has taken a particularly major hit as few women and men are traveling. Sales have dropped 90 percent during the previous two months, according to the founders. Off has closed its 10 retail stores, furloughed half of its employees, and laid off another 10 percent.

In the past couple of weeks, Rothy’s (shoes ), Everlane (apparel and shoes), ThirdLove (lingerie), and Rent the Runway (apparel rental) have announced layoffs and furloughs. Rothy’s opened a store in early March in Manhattan that’s temporarily closed, according to the supplier’s website. Its shoes are also sold in its stores in California and in Nordstrom places, along with 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 briefly closed on March 16.

U.S. Unemployment

The newly published 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 collected in 1948. The quantity of unemployed persons rose by 15.9 million to 23.1 million in April. The hospitality and leisure sector suffered the largest losses at 47 percent or about 7.65 million jobs.

Retail jobs dropped by 2.1 million. Apparel and accessories stores lost 740,000 employees. However, general merchandise stores, such as warehouse clubs and supercenters, gained 93,000 jobs.

U.S. Job Losses March to April 2020PRACTICAL ECOMMERCE | Source: U.S. Bureau of Labor Statistics

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End of interactive chart.

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

According to a survey of brands and retailers by marketing services firm Bluecore, earnings in 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 might be hard for brick-and-mortar retailers to lure back those shoppers.

Update, May 16, 2020: J.C. Penney filed for Chapter 11 bankruptcy protection on May 15 and said it would permanently shut some of its own 846 locations. The 118-year-old chain department store was battling for several years, well before the Covid-19 pandemic forced it to temporarily close all of its stores and furlough the vast majority of its 90,000 employees. It’s 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.

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