Beleaguered retailers battle to stay alive in 2020
Retailers have been divided into two distinct groups: the haves and the havenots.
And the have-nots are gasping for air. After a tumultuous year that has included more than 9,200 store closures and the liquidation of such chains as Payless ShoeSource, Gymboree and Charlotte Russe, a slew of national retailers are heading into 2020 on thin ice.
When you combine digital disruption with “a certain amount of Darwinism” that leads to “natural selection” every year in the ultra-competitive retail sector, it’s a recipe for upheaval, said Charlie O’Shea, a vice president and lead retail analyst at Moody’s Investor Service.
“Things can get geometrically bad quickly, and that’s what we’ve seen,” he said.
As of Dec. 5, Moody’s listed 17 retail or apparel companies with credit ratings of Caa1 or lower, the level at which companies are considered a big risk for lenders.
When companies fail to pay their debts, bankruptcy protection often is the next step, as Chapter 11 allows retailers to break leases on money-losing stores and slash loans. Some emerge victorious, and others end up shutting
down.
The retailers included here either declined to comment or didn’t respond to requests for comment. These retailers are gearing up for a crucial 2020:
J.C. Penney
This department store chain is scrambling to get traction. With more than a year under her belt now, CEO Jill Soltau still is unfolding a turnaround plan. In 2019, the Texas-based chain closed 27 stores, ended sales of appliances and furniture and placed the company’s focus back on its bread and butter: compelling apparel and related merchandise.
There were signs of life in the third quarter, when the company narrowed its net loss, compared with a year earlier. But with a projected same-store sales decline of 5% to 6% for the 2019 fiscal year, when factoring out the impact of no longer selling furniture and appliances, time could be running out.
J.C. Penney is testing ways to reinvent itself. At a remodeled store in Hurst, Texas, simply called Penney’s, the company has added a yoga studio, video game lounge, style classes and high-tech, personalized dressing rooms.
Rite Aid
With a Moody’s credit rating of Caa1 and trending down, Rite Aid’s outlook is gloomy. The company is stuck in an uncomfortable netherworld: not big enough to present a big threat to drugstore rivals Walgreens and CVS but not agile or rich enough to reinvent itself.
Rite Aid also faces the additional threat of disappointing health care insurance reimbursement rates and generic drug costs, according to CFRA Research.
Neiman Marcus
The luxury department store chain completed a debt restructuring plan in 2019 that included what S&P Global Ratings considered to be a “distressed” exchange. After the move, S&P rated the company as a “continued risk of restructuring.”
Same-store sales have been drifting down in recent quarters. After increasing 2.8% in the first quarter of 2019, they rose only 0.7% in the second quarter and fell 1.5% in the third quarter.
Moody’s rated the company as Caa3 as of Dec. 5, which means it has a “very high credit risk” and was close to a downgrade to Ca, which is “very near” or “likely in” default.
J.Crew
Like other apparel retailers with a heavy commitment to shopping malls, J.Crew is grappling with declining foot traffic. The long-distressed retailer announced Dec. 2 that it had agreed to terms to separate its J.Crew stores and Madewell women’s apparel business into independent companies.
The good news: Madewell is in solid shape and will be spun out in an initial public offering that will lead to “sustainable capital structures” for both companies, interim CEO Michael Nicholson said Dec. 2.
The bad news: J.Crew’s same-store third-quarter sales fell 4%.
In 2019, 62% of store closure announcements came in the apparel sector, according to global marketing research firm Coresight Research.
David’s Bridal
More than a year after David’s Bridal filed for bankruptcy protection, the wedding retailer is still waiting for its honeymoon. Although the chain survived Chapter 11, its performance in the succeeding months was disappointing, partly because of declining foot traffic and negative cash flow.
Now, with a new CEO on board, the nation’s largest wedding retailer is trying to reinvent itself. The company has cut some prices, loosened its return policy and added more sizes.
Sears and Kmart
Sears and Kmart have closed more than 3,500 stores and cut about 250,000 jobs over the last 15 years. More than 14 months after filing for Chapter 11 bankruptcy protection and narrowly escaping total liquidation after a last-minute sale in February to longtime investor and former CEO Eddie Lampert, the retailer is a shell of its former self.
In February, 51 Sears and 45 Kmart locations will close.