In recent months, the pandemic has had a dramatic effect on many industries, including retail stores. Unfortunately, many of these stores are having to close their doors for good as a result. This is devastating for business owners and employees, who often have to struggle to find new careers as a result. Even though there have been reprieves from some governments in terms of rent and taxes, these often can’t make up for the losses that businesses experience when sales decrease significantly due to a crisis such as this one.
The U.S. retail landscape has been over-stored for several years. Store closings have become routine leaving empty storefronts in malls and main streets alike. Now COVID-19 will continue to force more closings, with many familiar names opting for bankruptcy. Today, J. Crew filed for Chapter 11, and reports have placed JCPenney and Neiman Marcus on the edge as well. Expect a domino effect if big mall anchor stores continue to close. Many smaller mall tenants will not survive even as malls re-open with significantly less foot traffic. Malls themselves will be in danger of closing as well.
The following Retail Dive article reports more on this topic which is excerpted below:
Very few retailers are going to walk away from 2020 unscathed. Retail as an industry entered the year with a strong consumer, low unemployment and a general good feeling in the economy. Of course there were concerns and spots of pain. Even Walmart and Target posted lackluster fourth quarter numbers. Others had a much worse Q4 or stumbled into the year already surrounded by bankruptcy speculation.
Now the world is upside down, with tens of thousands of stores temporarily shut across the country, a pandemic keeping everybody in their homes and the possibility of deep recession looming.
In that environment, retailers that were already struggling with heavy debt, tight liquidity and/or negative profits face a potential financial crisis. Others that might have had downward trending numbers but some room to breathe could be forced to the edge faster than nearly anyone thought possible.
Observers expect bankruptcies in retail to rise; it’s just a question of how much, when the wave(s) will hit and what will become of the companies that file. Neiman Marcus, J.C. Penney and Guitar Center have or are said to have missed interest payments recently, setting the stage for restructurings, very possibly in court.
Overview provided by Raymond Pucci, Director, Merchant Services at Mercator Advisory Group.