Struggling retailers rush to file for bankruptcy

Over a two-week span in early July, seven retailers, including The Paper Store, Brooks Brothers and Lucky Brand, filed for bankruptcy protection. J.Crew, Neiman Marcus and J.C. Penney and four other retailers had already filed in May. Lord & Taylor and the off-price shop Stein Mart led another wave that hit earlier this month. Some would say it has been a flood, but what’s coming could be a tsunami. For apparel 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 predict another round of retail bankruptcies and liquidations could be coming if the predicted second wave of Covid-19 infections happens. 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, an executive managing director at the liquidation firm Tiger Capital Group, referring to the potential for more retail bankruptcies. Some 44 retailers have already landed in bankruptcy court in 2020, according to a tracking by S&P Global Market Intelligence. “The challenge is making sure we can actually close stores in a window that is open,” he said. Meal-kit company Blue Apron and online furniture retailer Wayfair are high on S&P Global’s list of companies at risk of defaulting on their debt and seeking bankruptcy protection. Apparel makers J.Jill, Christopher & Banks and Destination XL Group are also at risk, S&P Global said in an analysis this month. Firms including Tiger, Hilco, Gordon Brothers and Great American Group appear to be racing around the clock to work through what has been the busiest year for retail bankruptcies since the Great Recession. When it comes to the hundreds of going-out-of-business sales taking place simultaneously, resources are limited. Shoppers’ wallets are also somewhat strained, with millions of Americans out of a job. Thousands of bricks-and-mortar stores are shutting permanently this year, with closures already topping 6,000, according to Coresight Research. Retailers currently holding going-out-of-business sales include J.C. Penney, Stein Mart, Ann Taylor owner Ascena and Pier 1. While that means the deals might be crazy good for consumers on the hunt for bargains, it also means the competition is only heating up among retailers trying to recoup some of their losses by offloading the last of their merchandise. Deep discounts abound, and this is expected to make the holiday season even more competitive. Kohl’s Chief Financial Officer Jill Timm told analysts this week that she expects a lot of sales promotions during the last half of the year. “We expect the margin pressure to persist, given both liquidation pressures as well as people trying to go after that market share and the earlier holiday period,” she said. Some expect there could be a lull before another wave of filings hit, as the industry works through those liquidations already taking place. “We may just be a little bit on pause right now, because there has been so much [activity],” said Andy Graiser, co-CEO at the restructuring firm A&G Real Estate Partners. “But I think you are going to start seeing mid- and small-size companies filing in the fall. In some cases, they have gotten government money and have been able to buy time. But if their sales aren’t there, you are going to see more bankruptcies.” “And you may see more Chapter 7s because they can’t reorganize and don’t have the money to go through a Chapter 11,” he said, referring to liquidations versus reorganizations under federal bankruptcy law. Big mall owners are looking to do deals to salvage bankrupt retailers.