Pandemic wreaking havoc on stores

Companies are rushing to U. S. Bankruptcy Court during the coronavirus pandemic, seeking refuge from creditors as they grapple with the fallout from temporary store closures and the travel industry shutdown.

So far, most bankruptcy filings have been companies that were already in rough shape, including J. C. Penney, J. Crew, Neiman Marcus and Hertz.

Off- price retailer Tuesday Morning and restaurant chain Le Pain Quotidien joined them in Chapter 11 on Wednesday, while Advantage Rent A Car filed on Tuesday.

Taken together, these cases illustrate how the nation’s weakest companies are desperately trying to avoid outright liquidation.

Coresight Research, which tracks retail openings and closings, has upped its projected store closures for 2020 from 8,000 at the beginning of the year to 15,000 at the beginning of March to about 25,000 now.

“That’s unlike anything the industry has ever seen,” Coresight CEO and founder Deborah Weinswig said. “It’s the speed with which it’s all happening which has been a little surprising.”

But there’s no stopping the bankruptcies now, she said. She predicted that retail the number of June bankruptcies will double May bankruptcies.

That doesn’t necessarily mean those companies will go out of business. Bankruptcy can serve as a place of refuge for struggling companies, offering the chance to shed unsustainable debt, close unprofitable stores and restructure operations.

In each case so far during the pandemic, the debtors have said they hope to use bankruptcy to preserve their businesses for the long haul.

But filing for bankruptcy in the midst of what may be the worst economic crisis since the Great Depression poses the serious possibility of widespread going- out- of- business sales.

“I do think there is a genuine hope that the turnaround efforts will proceed, but it is kind of hard when people are prohibited from coming into your store and you can’t turn the lights on,” U. S. Bankruptcy Judge David Jones, who is overseeing the J. C. Penney case, said during a court hearing May 16.

In some cases, companies were already headed toward bankruptcy before the pandemic became an issue. That was the case for Belgian restaurant chain Le Pain Quotidien, chief restructuring officer Steven Fleming said in a court filing. The company had been struggling with increased competition from nimbler competitors, including fast- casual companies, and had suffered from a lack of digital ordering until recently.

“If you were a retailer with a heavy debt load, a questionable brand position and you weren’t sprinting to digital … you were probably on your way” to Chapter 11, said Matthew Katz, managing partner and practice lead in the retail and consumer practice of strategic advisory SSA & Co. “The pandemic has certainly made the slope ( more) slippery.”

For companies in the travel sector, it’s a different story. They’ve been knocked out by a force they could not have seen coming. But some of them were in rough shape already, as well.

For Advantage Rent A Car – which has been hit hard by a slowdown in travel, much like larger rival Hertz – bankruptcy is a familiar place. The company’s filing on Tuesday marks its third time in Chapter 11 since 2008, or what restructuring professionals dubiously call “Chapter 33.”

Regardless of their path to bankruptcy, companies that find themselves there in the midst of the pandemic face the double- barreled challenge of not being able to confidently project their future and grasping to secure fresh financing from lenders who may be extra hesitant to help out.

“We live in a world of no normal,” said Greg Portell, lead partner in the global consumer practice of Kearney, a strategy and management consulting firm. “We can’t plan what we’re going to do for July 4, so how is a retailer going to plan for the holiday season?”

For some, their best- laid plans have already gone awry.

Take Pier 1 Imports, for example. The company filed for Chapter 11 protection in February with plans to close up to 450 stores and keep several hundred alive. At the time, COVID- 19 was not viewed as a major threat to the American economy. But Pier 1’ s prospects grew increasingly grim with the onset of the pandemic, and the company announced last week that it will close all of its remaining stores.

Tens of thousands of jobs are at stake in the bankruptcy cases that have been filed since the pandemic began.

J. C. Penney alone had 85,000 workers when the crisis erupted.

GETTY IMAGES Coresight Research has upped its projected store closures for 2020 to about 25,000.