Struggling retailers rush to file for bankruptcy as fears of a second wave of coronavirus linger – CNBC
A pedestrian wearing a protective mask walks near a temporarily closed New York & Co. store in Silver Spring, Maryland, U.S., on Friday, June 5, 2020.
Andrew Harrer | Bloomberg | Getty Images
Over a two-week span in early July, seven retailers, including The Paper Store, Brooks Brothers and Lucky Brand, filed for bankruptcy protection.
J.Crew, Neiman Marcus and J.C. Penney and four other retailers had already filed in May. Lord & Taylor and the off-price shop Stein Mart led another wave that hit earlier this month. Some would say it has been a flood, but what’s coming could be a tsunami.
For apparel companies and department store chains, which have been hit hard by the coronavirus pandemic, the turmoil doesn’t appear to be slowing down anytime soon. Instead, industry executives and analysts predict another round of retail bankruptcies and liquidations could be coming if the predicted second wave of Covid-19 infections happens. Competitive pressures ahead of the holiday season could trigger a rush to bankruptcy court, they say.
“The pipeline is as full as it has been all year,” said Bradley Snyder, an executive managing director at the liquidation firm Tiger Capital Group, referring to the potential for more retail bankruptcies. Some 44 retailers have already landed in bankruptcy court in 2020, according to a tracking by S&P Global Market Intelligence.
“The challenge is making sure we can actually close stores in a window that is open,” he said.
Meal-kit company Blue Apron and online furniture retailer Wayfair are high on S&P Global’s list of companies at risk of defaulting on their debt and seeking bankruptcy protection. Apparel makers J.Jill, Christopher & Banks and Destination XL Group are also at risk, S&P Global said in an analysis this month.
Firms including Tiger, Hilco, Gordon Brothers and Great American Group appear to be racing around the clock to work through what has been the busiest year for retail bankruptcies since the Great Recession. When it comes to the hundreds of going-out-of-business sales taking place simultaneously, resources are limited. Shoppers’ wallets are also somewhat strained, with millions of Americans out of a job.
“I think there is a lot more to come,” said Tiger Chief Operating Officer Michael McGrail, who oversees the appraisal and disposition practices of Tiger’s retail, wholesale, and commercial and industrial divisions. “It’s just like anything else. We’ve seen the first wave, where those in critical condition are getting in trouble.”
The challenge is making sure we can actually close stores in a window that is open.
Executive managing director, Tiger Capital Group
Sporting goods chain Modell’s, for example, filed for bankruptcy on March 11 — before the coronavirus was deemed a global pandemic and states forced retailers across the nation to temporarily shut down. The company had started its liquidation sales, but was forced to pause them when its stores went dark.
Home goods retailer Pier 1 Imports, which also filed for bankruptcy before the pandemic, had been looking for a buyer in its court restructuring process. But the Covid-19 crisis made buyers scarce and it was forced to shut all of its stores for good.
“Retail Darwinism was accelerated because of the pandemic,” said Perry Mandarino, head of restructuring and co-head of investment banking for B. Riley FBR. “Whereby certain species survived because they were strong enough to, others have been weighed down by too much debt.”
Thousands of bricks-and-mortar stores are shutting permanently this year, with closures already topping 6,000, according to Coresight Research. Retailers currently holding going-out-of-business sales include J.C. Penney, Stein Mart, Ann Taylor owner Ascena and Pier 1.
While that means the deals might be crazy good for consumers on the hunt for bargains, it also means the competition is only heating up among retailers trying to recoup some of their losses by offloading the last of their merchandise. Deep discounts abound, and this is expected to make the holiday season even more competitive.
Kohl’s Chief Financial Officer Jill Timm told analysts this week that she expects a lot of sales promotions during the last half of the year. “We expect the margin pressure to persist, given both liquidation pressures as well as people trying to go after that market share and the earlier holiday period,” she said.
Some expect there could be a lull before another wave of filings hit, as the industry works through those liquidations already taking place.
“We may just be a little bit on pause right now, because there has been so much [activity],” said Andy Graiser, co-CEO at the restructuring firm A&G Real Estate Partners. “But I think you are going to start seeing mid- and small-size companies filing in the fall. In some cases, they have gotten government money and have been able to buy time. But if their sales aren’t there, you are going to see more bankruptcies.”
“And you may see more Chapter 7s because they can’t reorganize and don’t have the money to go through a Chapter 11,” he said, referring to liquidations versus reorganizations under federal bankruptcy law.