The signage will be displayed outside a JC Penney Co. store in Chicago, Illinois.
Christopher Dilts | Bloomberg | Getty Images
For the dozen of American retailers who have filed for bankruptcy in 2020, it doesn’t always mean the end is near.
This year retail bankruptcies have risen as many of the consumer-centric businesses that were on the verge of survival before the year before have risen Coronavirus pandemic were pushed into an even bigger slump in sales and could not cope with the crisis. And analysts say there is likely to be another wave of filings ahead after the holiday season, the size of which will depend on how retailers perform over the winter months.
A common misconception among consumers – when they see their favorite brands go to a bankruptcy court – is that these companies are disappearing for good. (Yes, tears are shed sometimes.)
But a number of retailers who filed for Chapter 11 bankruptcy protection this year have already emerged in some shape or way. Typically, this is the case with less brick-and-mortar stores as many companies will use the restructuring process to break leases without penalty and downsize their real estate portfolios.
When these stores close, mall owners and malls will be under pressure to find new tenants. The retail real estate industry has also grappled with the effects of the pandemic: fewer rental checks per month and thousands of store closings when fewer businesses want to open new locations. Mall owner CBL & Associates and Pennsylvania REIT both Filed for bankruptcy protection on SundayHighlighting these burdens.
Simply put, a Chapter 11 filing is a way for companies in trouble to run down unprofitable assets and onerous debt while their management team remains in control of the business. A bankruptcy court oversees the negotiation process with landlords, creditors, sellers and other parties involved.
In comparison, a submission under Chapter 7 leads to a complete liquidation.
The preppy clothing brand J.Crew was the first major retailer to apply for Chapter 11 during the pandemic in early May. The problems stemmed from the Covid-19 crisis as debt increased and sales plummeted. However, pressure increased when stores had to close in March to contain the spread of the virus, and many consumers returned their clothing spending.
In September, however, J.Crew stepped out of the bankruptcy court – this time with new owners. The restructuring plan swapped $ 1.6 billion of old secured debt for new ownership rights under the Anchorage Capital Group and also provided for a new $ 400 million credit facility.
“J.Crew and Madewell’s ability to combine timeless classics with modern, fresh designs will never go out of style. We intend to carry on the legacy of these two American brands with deeply loyal customers and strong, creative leadership teams,” said the Anchorage Capital CEO said in a statement.
The high-end department store chain Neiman Marcus also went bankrupt in late September after filing Chapter 11 shortly after J.Crew in May. The restructuring plan eliminated more than $ 4 billion in debt and eliminated $ 200 million in annual interest expense.
“The unprecedented business disruption from Covid-19 has brought many challenges, but it has also given us the opportunity to redefine our platform and improve our business,” said Geoffroy van Raemdonck, CEO of Neiman Marcus Group, in a statement . “We emerged from Chapter 11 as a stronger, more innovative retailer, brand partner and employer.”
The household goods chain Pier 1 imports has a unique story: it filed Chapter 11 in February and was planning to close about half of its locations, or about 450 stores, at the time. But when it couldn’t find a buyer for the rest of its business during the pandemic, it was began to liquidate in May.
However, last July a company became known as Retail e-commerce ventures paid $ 31 million for the Pier 1 brand name, intellectual property, data, and various online assets. Pier 1 website relaunched just before the holiday season.
REV is known for bailing out a number of other troubled companies: it owns the branded assets and e-commerce businesses of Linens’ n Things, Modells Sporting Goods, and Ascena Retail Group‘s Dressbarn Banner, to name a few.
“There is clearly an appetite to save,” said David Berliner, head of the BDO practice for corporate restructuring and turnaround. “The strategy is to get that much sales [from these brands] as you can.”
Simon Property Group, the largest US shopping mall owner, has partnered with apparel licensing firm Authentic Brands Group to buy out bankrupt denim maker Lucky Brand and men’s suit maker Brooks Brother – both earlier this year.
Jamie Salter, CEO of ABG, had previously told CNBC about it: “My strategy is simple. Buy low, sell high. … We make sure that when we get into retail, that [the company] has a purpose. If it’s no use, we find a purpose. “
The J.C. Penney is also in bankruptcy. It filed for Chapter 11 in May. Simon and Brookfield Asset Management have since entered into an asset purchase agreement to buy almost all of Penney’s businesses and assets with the aim of running the company outside of Chapter 11 before the holidays.
In total, there were 46 retail bankruptcies in 2020, according to S&P Global, exceeding the number of bankruptcy filings in the industry each year since 2010. These include some of America’s most famous brands: Lord & Taylor, Century 21, True Religion, Sur la Table and Tearored Brands, owners of men’s clothing.
Some industry analysts believe there will be more submissions, especially after the holidays.
“The worst is yet to come. The dust has not yet settled,” said Scott Stuart, CEO of the Turnaround Management Association. “You think Christmas will save retailers? Maybe it won’t.”
And analyst forecasts for Christmas sales are omnipresent. In large part, this is because there are still quite a number of unknowns – linked to the pandemic and politics – that could affect consumer confidence in one way or another.
Deloitte, for example, calls for two scenarios: One where Christmas sales climb flat at 1% if consumers – and low-wage workers in particular – remain nervous about their health and finances. However, a bigger increase of 2.5% to 3.5% could happen if wealthier consumers gain even more confidence in the second half of 2020, Deloitte said. Factors that could boost confidence in this group include a fall in unemployment, additional government incentives, and an effective one Covid-19 Vaccine, it said.
The leading retail trade organization, the National Retail Federation, has not yet released its annual holiday forecast – which it usually does in October.
“When the dust clears in January … you’ll see the stressed out retailers who weren’t good enough to make it through the first one [New] Year, “said Berliner from BDO.
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