The coronavirus is crushing bankrupt retailers’ hopes for a rebound – and threatening even more jobs

Bankruptcy doesn’t need to mean the end of a company. It can be a shot to shed debt, reorganize and come out stronger. 

But during the coronavirus pandemic, bankruptcy filings are increasingly spelling doom for retailers. In turn, it threatens thousands of more workers in an economy that has already suffered tens of millions of lost jobs.

Retailers’ woes could also have an impact on this year’s election campaign as employment will increasingly become a focus for politicians looking to appeal to the working class.

The bad news for retailers and their employees keeps piling up. Home goods chain Pier 1 this week announced plans to liquidate its business after failing to find a buyer. Modell’s announced plans to shutter its business in March. Grocer Earth Fare, which filed for bankruptcy in February, only found a buyer for parts of it.

Contrast their fortunes with retailers like Macy’s and Mattress Firm, which have utilized court protection to get out of bad leases and downsize to their most profitable stores. Some, like Gymboree and Payless ShoeSource, emerged from bankruptcy only to fall back in. But at least they had a shot to come back.

Those shots are likely to be fewer in the aftermath of the coronavirus outbreak, according to retail and restructuring experts. Retail was already facing broader challenges as shoppers increasingly abandoned malls for online commerce. Now, the financing for retail isn’t there as banks tighten their purse strings. It’s not clear that shoppers are going to be there, either. A second wave of the coronavirus could be on the way later this year as states relax social-distancing guidelines and reopen their economies under the guidance of the Trump administration.

“Given the fact that unemployment on its way to 20% and social distancing is an unpleasant reality – it’s difficult for me to envision a world where a bankrupt company trying to emerge from a Chapter 11 proceeding is going to be able to put financial projections that lenders have confidence in,” said Eric Danner, a partner with CohnReznick Advisory’s Restructuring Dispute Resolution Practice.

So far this year, the number of liquidation plans by bankrupt retailers has not outpaced previous years. Five of the 15 retailers that have filed for bankruptcy to date have announced plans to shutter their businesses, according to data provider Debtwire, though some of those retailers could still turn into a liquidation. Last year, 16 of the 25 retailers that filed for bankruptcy liquidated. The year prior, 11 of 23 bankrupt retailers shuttered their doors.

But it’s only May.

Article source: https://www.cnbc.com/2020/05/21/coronavirus-crushes-bankrupt-retailer-hopes-for-rebound-threatens-jobs.html