Distressed retailers rush to file for bankruptcy as second wave fears persist

A pedestrian wearing a protective mask walks near a temporarily closed New York & Co. store in Silver Spring, Maryland, the United States, Friday, June 5, 2020.

Andrew Harrer | Bloomberg | Getty Images

Over a two-week period in early July, seven retailers, including The Paper Store, Brooks Brothers and Lucky Brand, filed for Arkansas bankruptcy.

J.Crew, Neiman Marcus and JC Penney and four other retailers had already filed their cases in May. Lord & Taylor and low-cost store Stein Mart led another wave that hit earlier this month. Some would say it is a flood, but what is coming could be a tsunami.

For clothing companies and department store chains, which have been hit hard by the coronavirus pandemic, the turmoil doesn’t appear to be slowing down anytime soon. Instead, industry executives and analysts are predicting that another round of retail bankruptcies and liquidations could occur if the predicted second wave of Covid-19 infections occurs. Competitive pressures ahead of the holiday season could trigger a rush to bankruptcy court, they say.

“The pipeline is as full as it has been all year,” said Bradley Snyder, executive managing director of liquidation firm Tiger Capital Group, referring to the potential for more retailer bankruptcies. Some 44 retailers have already landed in bankruptcy court in 2020, according to a follow-up by S&P Global Market Intelligence.

“The challenge is to make sure that we can actually close the stores in an open window,” he said.

Meal kit company Blue Apron and online furniture retailer Wayfair feature high on S&P Global’s list of companies at risk of defaulting on debt and seeking bankruptcy protection. Clothing makers J. Jill, Christopher & Banks and Destination XL Group are also at risk, S&P Global said in an analysis this month.

Companies such as Tiger, Hilco, Gordon Brothers and Great American Group appear to be running relentlessly to overcome what has been the busiest year in personal bankruptcies since the Great Recession. When it comes to the hundreds of business closing sales going on simultaneously, resources are limited. Buyers’ portfolios are also somewhat strained, with millions of Americans out of work.

“I think there is a lot more to come,” said Michael McGrail, COO of Tiger, who oversees the assessment and disposition practices of the retail, wholesale, commercial and industrial divisions. by Tiger. “It’s like anything. We saw the first wave, where people in critical condition are in trouble.”

The challenge is to make sure that we can actually close the stores in an open window.

Bradley Snyder

Executive Managing Director, Tiger Capital Group

Sporting goods chain Modell’s, for example, filed for bankruptcy on March 11 – before the coronavirus was considered a global pandemic and states forced retailers across the country to temporarily shut down. The company had started its liquidation sales, but was forced to put them on hold when its stores shut down.

Housewares retailer Pier 1 Imports, which also filed for bankruptcy before the pandemic, was seeking a buyer as part of its judicial restructuring process. But the Covid-19 crisis made buyers scarce and it was forced to permanently close all of its stores.

“Retail Darwinism has accelerated because of the pandemic,” said Perry Mandarino, head of restructuring and co-head of investment banking for B. Riley FBR. “While some species survived because they were strong enough to do so, others were burdened with too much debt.”

Thousands of physical stores are closing permanently this year, with closures already exceeding 6,000, according to Coresight Research. Retailers who currently hold discontinued sales include JC Penney, Stein Mart, owner Ann Taylor Ascena and Pier 1.

While this means the deals can be crazy for bargain-hunting shoppers, it also means competition is only intensifying among retailers trying to recoup some of their losses by offloading the last of their bucks. merchandise. Big discounts abound, which should make the holiday season even more competitive.

Kohl’s chief financial officer, Jill Timm, told analysts this week that she expects plenty of sales promotions in the past half year. “We expect the pressure on margins to persist, given both the liquidation pressures and the people trying to grab that market share and the holiday period earlier,” he said. she declared.

Some expect there to be a lull before another wave of deposits hits, as the industry works through liquidations already underway.

“We may be on a bit of a break right now, because there have been so many [activity]”Said Andy Graiser, co-CEO of restructuring firm A&G Real Estate Partners.” But I think you’re going to start seeing midsize and small companies filing applications in the fall. In some cases, they got money from the government and were able to save time. But if their sales aren’t there, you’re going to see more bankruptcies. ”

“And you can see more Chapters 7 because they can’t reorganize and don’t have the money to go through a Chapter 11,” he said, referring to liquidations versus reorganizations in under federal bankruptcy law.

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