No New Bankruptcy Filings, But Darkness Intensifies For Department Stores

The retail bankruptcy watch turned to some Wednesday morning quarterbacking this week, as industry experts and observers took turns assessing the current and potential damage to the department store category amid the coronavirus crisis.

“The department stores, which have been failing slowly for a very long time, really don’t get over this,” said Mark A. Cohen, the director of retail studies at Columbia University’s Business School told The New York Times. “The genre is toast, and looking at the other side of this, there are very few who are likely to survive.”

Cohen’s comments are on the radical side of the retail prediction scale. As seen over the past two weeks, the leading department stores have either declared bankruptcy, expressed an intent to do so or have fought to restructure debt. None, however, are accepting the label “toast.” It is also becoming evident that Chapter 11 and debt restructuring (see Macy’s story) will also need to be accompanied by some cooperative arrangements with suppliers if the category is to survive. Neiman Marcus — which is reportedly preparing to file bankruptcy — is no longer accepting new merchandise.

“I’ve had a showroom for over 30 years, and we have always used the word ‘partnership,’ when talking about our relationship with the department stores,” said Betsee Isenberg of the showroom 10Eleven, which represents numerous brands such as Vince and ATM. “Through 9/11, through 2008, we worked hand in hand with our retailers. This is the first time the onus has been on the brands — many of which are losing millions and millions of dollars because of the canceled orders. It is just not fair that it is survival of the fittest.”

It’s unlikely that brands would make their accommodations to individual retailers public. But the “partnership” that Isenberg describes is most likely going to mean continued steep discounting as retailers try to keep cash flow moving and try to keep spring fashions relevant.

Retail expert Dan Kane, co-founder of Tiger Capital Group, is more moderate in his predictions.

“We have all heard how the United States is so over-retailed compared to other countries,” Kane said in a recent interview with ABF Journal. “This event may expedite the reduction to get us where a lot of the other countries are in terms of retail square footage … I don’t see how the next year or two are not going to be very busy in retail store closings, unfortunately.”

When economic activity starts to resume, Kane believes that the “unknowns” will become more significant. They include consumer safety perceptions, discretionary spending and whether safety measures limit sales. “We’re already hearing that certain locations may not even accept cash because of the dangers associated with touching the money,” Kane said.

In the meantime, ripple effects will continue to be felt. The coronavirus shutdown also threatens to leave retailers with surplus inventory. “And think about how many retailers and others cannot afford to pay their rent now, as well was what’s happening to those who supply food to restaurants, all of the workers there,” Kane said. “There is so much less trucking going on these days. In auctions, we have seen reductions of 25 percent on the price of trucks.”