By Aisha Al-Muslim
Retail bankruptcies, liquidations and store closings in the U.S.
reached records in the first half of 2020 as the Covid-19 pandemic
accelerated industry changes, particularly the shift to online
shopping, according to a report on the downturn's severity.
This year's collapse in American retail is on pace to rival
2010, when 48 retailers filed for bankruptcy in the wake of the
2007-09 recession, according to the report by professional-services
firm BDO USA LLP. Including filings through mid-August, BDO said 29
retailers have sought bankruptcy protection in 2020, surpassing the
22 such filings recorded last year.
Temporary government-mandated store closures and
social-distancing measures have intensified challenges that
bricks-and-mortar retailers had faced before the pandemic,
according to BDO. Consumers stuck at home are buying more online
than ever, with rising internet sales expected to partially offset
losses from physical stores, the report said.
That trend has put more pressure on bricks-and-mortar locations,
compounded by excessive debt, store saturation, high unemployment
and changing shopper behaviors. In particular, demand has cratered
for business attire and outfits for social occasions -- weddings,
graduations and other milestones.
"This is almost certainly the worst year in recent history for
retail," said Kyle Sturgeon, a managing partner at Atlanta-based
turnaround advisory firm Meru LLC.
In the first six months, 18 retailers filed for chapter 11
protection, mostly concentrated in apparel and footwear, home
furnishings, grocery and department stores, BDO said. They include
department-store operators Neiman Marcus Group Ltd., J.C. Penney
Co. and Stage Stores Inc., home-goods retailers Pier 1 Imports Inc.
and Tuesday Morning Corp. and vitamin seller GNC Holdings Inc.
"The trend is still a lot of liquidations and asset sales, and
some of them are still trying to reorganize and emerge," said David
Berliner, a partner in the firm's business restructuring and
turnaround services practice.
From July through mid-August, 11 more retailers filed, including
apparel retailers Lucky Brand Dungarees LLC, Brooks Brothers Inc.,
Ann Taylor parent Ascena Retail Group Inc., Stein Mart Inc. and
Tailored Brands Inc., the parent of Men's Wearhouse and Jos. A.
"I don't think it's going to stop anytime soon," said Andy
Graiser, co-president of commercial real-estate advisory firm
A&G Real Estate Partners, who advises Tailored Brands, Ascena,
Neiman Marcus and Stein Mart, among others.
Before the pandemic, department-store chains such as Lord &
Taylor, J.C. Penney and Neiman Marcus were already struggling as
shoppers bought more online, defected to startups and shifted their
preferences to small specialty stores.
Men's Wearhouse and Jos. A. Bank parent Tailored Brands, which
filed for bankruptcy in August, partly blamed its struggles on
missteps such as underinvesting in casual clothes and e-commerce.
J.Crew also signaled that it was unable to overcome the shifts to
fast fashion and online shopping.
Discount home-goods retailer Tuesday Morning, which filed for
bankruptcy in May, was hurt by its lack of e-commerce presence as
more shopping shifted online.
Upscale retailer Neiman Marcus filed for chapter 11 in May. "We
had a business that was on track prior to Covid-19," Chief
Executive Geoffroy van Raemdonck said at the time. "Everything was
going well in our transformation, but we had massive interest
payments. Covid threw everything off track. This is an opportunity
to reset our financial structure."
High rates of bricks-and-mortar store closures are expected to
continue, BDO said. From January through mid-August, retailers had
announced they would close more than 10,000 stores in the U.S.,
including locations of solvent companies such as Macy's Inc., Bed
Bath & Beyond Inc. and Gap Inc.
That has already topped last year's record 9,500 store closures.
Many of the closings through mid-August 2020 were due to retail
bankruptcies, which accounted for nearly 6,000 closures.
Retailers have said so far this year that they plan to close
over 130 million square feet of store space in the U.S. Of that
total, more than half belongs to five retailers: Penney, Macy's,
Stein Mart, Bed Bath & Beyond and Pier 1 Imports, according to
real-estate data firm CoStar Group Inc.
Retailers are likely to decide to close as many as 25,000 U.S.
stores in 2020, according to global market-research firm Coresight
Many of the stores going dark are anchors and other tenants in
shopping malls. Real-estate research firm Green Street Advisors LLC
has forecast that more than half of all mall-based department
stores in the U.S. will close by the end of 2021.
Landlords including mall owners Simon Property Group Inc. and
Brookfield Property Partners LP have been stepping up, buying
troubled tenants like J.C. Penney out of chapter 11, their third
acquisition in four years of a bankrupt tenant.
More retailers are expected to seek bankruptcy protection in the
second half of the year, though the pace could slow in the fourth
quarter as some hold off until early next year in hopes of a
profitable holiday season.
"If the holidays don't go as planned, there's going to be some
real cash flow and income hits to these retailers," said Mr.
Berliner, who has advised on the bankruptcies of Tuesday Morning
and Lord & Taylor. "For some of these, still distressed
retailers with a lot of debt, may be their last straw."
Some companies that have waited too long to file for bankruptcy
might simply liquidate if they keep burning cash and don't have
enough money to fund a restructuring through the courts.
"That's not the norm and I think we're gonna see a lot more of
those," said Mr. Graiser, pointing to Stein Mart and off-price
retailer Century 21 Department Stores LLC, which filed for
bankruptcy in August and September, respectively, and are
liquidating their assets.
Shaky companies that make it through the holiday season might
survive only to encounter landlords that had agreed to rent
deferrals but now want payment in full. The added pressure might
force more retailers to close stores and file for bankruptcy, Mr.
"That's a huge bubble that is going to burst for a lot of
retailers with the inability to pay that back," he added.
Write to Aisha Al-Muslim at email@example.com
(END) Dow Jones Newswires
September 29, 2020 16:27 ET (20:27 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.