The rallying stock market may not care about it right now, but the economic devastation from the COVID-19 pandemic continues in full force.
Indeed this week highlights the ongoing pain ripping through Corporate America. Overly indebted vitamin seller GNC filed for bankruptcy on Wednesday, crushed by mall closures brought on by the pandemic. Chuck E. Cheese — also boasting a ton of debt following a 2014 leveraged buyout — filed for bankruptcy on Thursday as the prospect of catching COVID-19 by touching dirty games keeps parents and children away.
“I think what you’re seeing is what we’ll call the prolonged washout from COVID,” said Barclays chief U.S. economist Michael Gapen on Yahoo Finance’s The First Trade. Gapen says he is most concerned about the prospect for service-oriented companies in life after COVID-19, and doesn’t rule out more bankruptcies in the months and years ahead.
“We think that [those sectors] will struggle for a longer-term,” Gapen adds.
Bankruptcy stats so far on the year underscore Gapen’s “washout” theory.
Commercial Chapter 11 filings spiked 48% in May year-over-year, according to legal industry service provider Epiq. The number of Chapter 11 filings rose an alarming 30%. Across all U.S. bankruptcy code chapters, Epiq notes the total number of new bankruptcy filings increased 3.9% from April.
Besides bankruptcies, major corporate restructurings persist as companies prepare for leaner futures due to COVID-19 scars.
Slowly dying department store Macy’s said Thursday it will axe 3,900 corporate workers in a bid to save $365 million this year. The company’s top and bottom lines have been hit hard by the pandemic, despite a race to offer curbside pickup and get stores reopened.
“We know that we will be a smaller company for the foreseeable future, and our cost base will continue to reflect that moving forward,” acknowledged Macy’s CEO Jeff Gennette.
The news out of Macy’s comes fresh on the heels of Hilton saying last week it would cut 22% of its corporate workforce as hotel demand remains weak.