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Coronavirus could wipe out department stores: former Apple store chief

Brian Sozzi
Editor-at-Large

In case you needed a reminder, the outlook for the beleaguered U.S. department store sector is even more bleak as the coronavirus has shut stores down indefinitely across the country.

The former CEO of J.C. Penney and architect of the Apple retail stores, Ron Johnson, provides his brutal forecast on the sector.

“I think it will be really difficult to survive,” Johnson, founder of Enjoy, a last mile delivery firm for tech gear, said on Yahoo Finance’s The First Trade. “I think it will be hard for B and C malls to survive.”

Johnson continued, “We have to remember that department stores came into this with tough balance sheets. The number one category people are buying today is food. The category they are least interested in is fashion apparel. So it will be really hard for department stores to come out of this. I think if I was in the meetings at Macy’s and J.C. Penney I think what they would be talking about is not when do we reopen, it’s how many stores do we reopen. It wouldn’t be surprising if many of these department stores and others use this opportunity to massively reduce their footprints to get at a footprint they planned to be at five years from now because they won’t be able to survive.”

Having to shutter stores, means no cash is coming into the likes of Macy’s (M), J.C. Penney (JCP), Dillard’s and Kohl’s (KSS), other than online operations that remain open. But those businesses are far less profitable than stores because of shipping costs — so in other words, less cash coming into the business than the norm.

With next to no cash coming into the business, heavily indebted department stores have tapped their credit lines further to stay afloat and pay exorbitant rent and personnel expenses.

The Macy's store at the popular Tyson's Corner Center sits closed Monday, March 30, 2020, in McLean, Va., a Washington, D.C., suburb. Macy's announced that they would furlough a majority of their 130,000 workers after their stores closed due to the virus outbreak. (AP Photo/J. Scott Applewhite)

This week alone Macy’s, Gap (GPS) and Kohl’s have furloughed 227,000 workers to shed costs. J.C. Penney said this week it’s putting most of its 90,000 workers on furlough. Who knows if these employees will return and if they do, what their hours will look like and if they will be keen to offer great customer service after being abandoned by corporate suits during such a difficult time.

Ultimately, it’s anyone’s guess when these locations will reopen. It’s anyone’s guess what consumer demand will look like during the critical holiday season as people catch up on bills incurred during coronavirus quarantines. Hence, the very future of the department store space — which has been hammered by the shift to online shopping — is in serious question.

Johnson said he expects department store same-store sales to plunge north of 20% this fall.

Fitch echoed Johnson’s concerns this week. The ratings agency lowered its outlooks for most of the major names in the department store sector. In particular to struggling J.C. Penney, Fitch voiced concerns about the retailer’s liquidity position moving forward.

Shares of Macy’s, J.C Penney and others have dropped further this week after the Fitch downgrades.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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