'A scary number' of retail companies are facing bankruptcy amid the coronavirus pandemic
The retail death march persists.
Somewhat under-the-radar, Italian luxury goods retailer Furla filed for Chapter 11 on Friday after being hit hard from the COVID-19 pandemic. The company is looking to close stores and cut debt as part of the reorganization. The retailer, founded in 1927, plans to emerge from bankruptcy with a greater focus on e-commerce.
Furla joins a long list of well-known retailers that have buckled during the health crisis.
New York City-based department store chain Century 21 filed for bankruptcy in September and said that it will shut 13 locations that for years served up deep discounts on designer wares. The company pinned the blame on the COVID-19 pandemic and uncooperative insurers who were supposed to help provide the company with fiscal support during tough times.
Bankrupt J.C. Penney, meanwhile, received a bailout in September from landlords Simon Property Group and Brookfield. The consortium valued the century old department store — which went bust back in May — at some $1.75 billion. A total of 650 stores will stay open, down from the more than 1,000 pre-pandemic.
“It takes a long time to kill a retailer,” Forrester retail analyst Sucharita Kodali told Yahoo Finance Live “So as long as they are able to pay their bills, which if they have an owner they will — they can absolutely be around. But that doesn’t mean death for J.C. Penney is totally off the table.”
Kodali added that J.C. Penney “may not be a great customer experience, but at least it’s alive and open. They can figure out what the plan B over five to ten years could be for that space.”
‘That’s a scary number’
States have allowed malls and retailers to reopen, but the situation remains precarious as COVID-19 infections are now back on the rise. Consequently, it’s reasonable to expect malls and stores are shutdown — or shopping times restricted —again before year end. That will raise the prospect of a fresh wave of bankruptcies in early 2021 after what could be a lackluster holiday shopping season.
“I think many of these companies will file [for bankruptcy], and it’s not a handful. It’s several dozen. And that’s a scary number,” Stifel managing director Michael Kollender, who leads the consumer and retail investment banking group for the firm, told Yahoo Finance. “It’s far more than we have seen over the last several years combined.”
Kollender and his colleague James Doak at Miller Buckfire — Stifel’s restructuring arm, where Doak is co-head — have worked on dozens of consumer and retail bankruptcies in recent years, including Aeropostale, Gymboree and Things Remembered.
“We will see some major chains go away and not come back,” Kollender added. “These are chains that were struggling before the situation. COVID-19 will put them over the ledge.”
The pandemic has toppled several household names this year. Stein Mart, a 112-year-old discounter, filed for bankruptcy in early August and will look to close most of its nearly 300 stores. The company cited significant financial stress brought on by the COVID-19 pandemic for its decision.
August also saw Lord & Taylor — the oldest U.S. department store founded in 1826 — file for Chapter 11 bankruptcy protection after being crippled by COVID-19 store closures. The company was purchased for $100 million from Hudson’s Bay by fashion startup Le Tote in 2019. Le Tote also filed for Chapter 11.
Men’s Wearhouse-owned Tailored Brands also filed for Chapter 11 in August, too. The company said it had received $500 million in debtor-in-possession financing from existing lenders.
Meantime, Ascena Retail Group, the owner of Ann Taylor and Lane Bryant, finally filed for bankruptcy protection in late July. The company, which has been circling the bowl for years, will look to the courts to help it shave $1 billion in debt. But it’s likely the retailer will be far slimmer post bankruptcy than its current 2,800 store count.
Regional retailer Paper Store filed for Chapter 11 in July as well. The operator of 86 stationary and card stores in the Northeast said it’s looking for a buyer.
New York & Co. parent company RTW Retailwinds also filed for Chapter 11 bankruptcy protection in July after years of growing irrelevance in malls. The women’s apparel company — which changed its name to the bizarre RTW Retailwinds as part of a rebranding in 2018 — operates 378 outlet and and mall-based stores across 32 states. It may close all of its stores as part of the filing.
“The combined effects of a challenging retail environment coupled with the impact of the Coronavirus (COVID-19) pandemic have caused significant financial distress on our business, and we expect it to continue to do so in the future. As a result, we believe that a restructuring of our liabilities and a potential sale of the business or portions of the business is the best path forward to unlock value. I would like to thank all of our associates, customers, and business partners for their dedication and continued support through these unprecedented times,” said RTW Retailwinds CEO Sheamus Toal in a statement.
And the list of now defunct retailers is almost endless.
Brooks Brothers filed for bankruptcy in July. It has been dealt a twin blow to its finance from closed malls and a shift away from preppy clothing. The company would up being sold to the duo of Authentic Brands Group and Simon Property Group for $325 million.
GNC has walked through death’s door after knocking on it for years. The 85-year-old vitamin seller filed for bankruptcy in late June after years of battling waning sales and a debt load north of $1 billion. GNC plans to shutter up to 1,200 stores across the U.S. The company operates more than 5,800 stores.
“Some companies are just not going to survive this,” says McGrail, who is the COO of one of the world’s largest asset disposition and valuation firms, Tiger Capital Group. Its McGrail’s team — which often includes store associates of a stricken retailer — that hangs the “Everything must go” signs and works to fetch top dollar on fixtures and other inventory.
Such is the current life for McGrail and others in the retail bankruptcy and restructuring fields. In talking to a host of experts, one thing is abundantly clear: more retail bankruptcies are very likely over the next twelve months.
Even for those retailers emerging from bankruptcy, vendors are likely to be tepid to ship them product while at the same time tightening payment terms as the pandemic rages on.
That one-two punch usually kills a wounded retailer for good.
Then there is the general uncertainty on how people will view going back to the mall in the new normal of social distancing. That fog of war is poised to persist well beyond the coming holiday season.
“We are in a retail tsunami,” Kollender said.
This story was originally published on June 24, 2020, and has been updated.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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