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Why 'zombie' retailers are taking so long to die

Your favorite store may be among the zombie retailers who in 2020 finally realize their demise.

“Talk about an unloved sector. I mean retail,” said Steve Sosnick the Chief Strategist at Interactive Brokers (IBKR).

Sosnick told Yahoo Finance’s On the Move low interest rates and easy money are allowing companies to stay in business when the market would normally force them to close.

Late on Monday, Pier 1 imports (PIR) announced it will close 450 stores, almost half its shops in the U.S. and lay off 300 people from its headquarters in Fort Worth Texas.

“I think you're getting a lot of companies and it's not specifically retail, but retail has a lot of them. Sort of zombie companies that are hanging around a lot longer than they might otherwise. And Pier 1 sort of strikes me as one of those,” Sosnick said.

Analysts suspect Pier 1 could be heading toward bankruptcy if the cost cutting fails to produce positive results. It reported third quarter fiscal 2020 results Monday which saw same store sales fall 11.4% year over year leading to a net loss of $59 million.

CEO and CFO Robert Riesbeck said,“Fiscal third quarter sales and margins remained under pressure.” He says the 450 stores being closed is "a necessary business decision" that will help the company shrink its footprint and operating structure.

More stores closing

Sears emerged from bankruptcy last year, although the troubled retailer is still fighting with creditors in bankruptcy court over the valuation of assets that were purchased out of bankruptcy. Sears announced plans in November to close 51 more stores on top of the hundreds it closed prior to bankruptcy.

Macy’s (M) announced on Monday that it is closing 15 stores and says it will update investors at its upcoming investor day event in February if these are additional closings on top of the 100 stores it began shutting down three years ago.

JC Penney (JCP) closed 18 stores and 9 home furnishing shops in 2019. On Tuesday, its stock was trading around $1.15 a share. The company hired debt restructuring advisers last summer when its share price fell to $0.53. JC Penny has close to $4 Billion in debt more than half of which comes due in 2023.

An empty jewelry display case is seen inside a Sears department store which was being closed as part of multiple store closures by Sears Holdings Corp in the United States in Nanuet, New York, U.S., December 21, 2018. Picture taken December 21, 2018. REUTERS/Mike Segar

Retail consultant Rick Helfenbein the former President and CEO of the The American Apparel & Footwear Association says, “We have too much selling space in America.” He says stores have been pairing down and points out that 9,300 shops closed last year.

“There could be even more this year, which is a little bit of a frightening thought. But we're paring down,” Helfenbein said.

Sosnick says a lot of stores are on the ropes and a slow down in consumer spending or even a recession could push them into the grave.

“It actually makes me wonder whether you really should be starting to think about which are going to be the survivors,” he said.

Adam Shapiro is co-anchor of Yahoo Finance On the Move.

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