The coronavirus could mean the end for a number for vulnerable retailers.
With millions of Americans forced to stay home to help prevent the spread of COVID-19, foot traffic to malls and downtown shopping areas is quickly evaporating, a potential deadly blow for those chains teetering on the edge of bankruptcy.
A new monthly report from S&P Global Market Intelligence, which tracks the publicly-traded retailers that are the most likely to default in the next year, offers a glimpse at those most at risk during the coronavirus outbreak. Several large mall-based brands sit atop the list, including: Victoria’s Secret’s parent company L Brands, Francesca’s, Ann Taylor’s parent company Ascena Retail Group, J.Jill, JCPenney and The Children’s Place.
While many of these retailers have been on bankruptcy watch for months—typically due to some combination of falling sales, low cash reserves and too much debt—the coronavirus could fast-track their demise.
In recent days, Victoria’s Secret and Ann Taylor have joined a parade of retailers to announce voluntary two-week store closures to help slow the spread of the virus, wiping out any shot at in-store sales. Their best hope is to recoup sales on the web. While more shoppers may flock online while they’re stuck at home, there is no mistaking their reliance on stores. According to the National Retail Federation, 89% of total retail sales still take place at brick-and-mortar stores.
At the same time, retailers are stuck with rent and other fixed costs of running a sprawling fleet of stores. Most retailers have said they will continue to pay employees while stores are closed. However, those who have a meager amount of cash on their balance sheet to fund operations could quickly find they are unable to pay their bills. Large amounts of debt put further strain on balance sheets.
There have already been eight retail bankruptcies this year. Pier 1 has put itself up for sale and will permanently close 450 of its stores. Art Van Furniture, which was purchased by a private equity firm in 2017, will close all of its stores.
“We haven’t seen any bankruptcies tied to coronavirus yet because it’s fairly new,” says S&P data analyst Chris Hudgins. “However, we might see more as time goes on. The ones that have more cash on their books and less leverage are going to be the ones that do better in times like this.”
– Lauren Debter, Forbes Staff, Retail