The aftermath of a blowout Amazon Prime Day in October may not be fully felt in the retail sector until after this coming holiday season. And by then, we could be back to hearing of some major retail bankruptcies by chains that were unable to keep pace with the might of Amazon and its closest competitors.
“Certainly if retailers who are on the edge don’t have strong seasons, come January you can see a whole bunch of bankruptcies,” said Perry Mandarino, B. Riley’s co-head of investment banking, on Yahoo Finance’s The First Trade. Mandarino has worked on retail restructurings and bankruptcies for years, most recently the busts in 2020 of New York & Company and Tuesday Morning. So his views on the post-holiday environment for retail shouldn’t be taken lightly.
Added Mandarino, “I think the bankruptcies are probably more or less done for this year.”
Comforting, for now. But hardly comforting for too long as retailers contend with a more aggressive than usual Amazon this holiday season.
Amazon Prime Day — which typically happens in mid-July but was pushed out to Oct. 13-14 due to the pandemic — is expected to register some $10 billion in worldwide sales this year, according to new data from eMarketer. That would mark an impressive 43% year-over-year increase.
eMarketer also forecasts that on the back of a strong Prime Day, U.S. Prime members will hit 142.5 million in 2020, up 14.9% from a year ago. As Yahoo Finance’s Julia La Roche points out, that would mean more than 50% of the U.S. population is a Prime member and probably spending more on the site than at the local mall.
Unsurprisingly, Amazon’s Prime Day aggressiveness has triggered others to join in on the October promotional barrage. Walmart, Target and Best Buy have all unleashed sales events at the same time as Amazon Prime Day.
But all this activity has added pressure on weaker players — notably heavily indebted mall-based retailers — to match the promotional rigor by larger foes or risk losing business. And if they even wrestle business away from Amazon and others, it may not be profitable business — at a time when profits are paramount considering extra costs and cautious consumers amidst the pandemic.
To be sure, that financial statement dysfunction sets the stage for an alarming return of bankruptcies in 2021 after a brutal 2020.
A total of 27 retailers have filed for bankruptcy in 2020, according to Retail Dive. The death list is a who’s who of companies unable to keep pace in the age of Amazon: Century 21, Lord & Taylor, J.C. Penney, J. Crew and GNC, to name a few.
Fear of the next bankruptcy wave unfolding is written all over the stock prices of some household names right now.
Shares of mall-based department stores Macy’s and Nordstrom are down 10% and 14%, respectively, in the past three months per Yahoo Finance Premium data. Off-mall department store Kohl’s shares are up 6% in the past three months, lagging the S&P 500’s 11% gain, helped by news of mass layoffs at the company.
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