The reality for retail: Bankruptcy as a strategic option for survival
INSIGHT ARTICLE |
Authored by RSM US LLP
Many retail businesses were struggling even before the COVID-19 pandemic affected the United States. Over 9,000 bricks-and-mortar stores closed in 2019, extending a three-year record-setting trend.1 The pandemic and related nationwide economic shutdowns have exacerbated an already challenging environment. As of Aug. 21, 2020, over 7,600 store closures have been announced to date,2 with 2020 totals expected to reach 25,000,3 nearly triple the 2019 total.
A survey of retail bankruptcy filings tells a similar story. Over 35 national retailers have already filed for bankruptcy protection this year, spanning a variety of industries and including the following household names:
- Apparel: JCrew, Tailored Brands (Jos. A. Bank, Men’s Wearhouse), Brooks Brothers, Ascena Retail Group (Ann Taylor, LOFT, Lane Bryant)
- Casual dining: NPC International (the largest independent franchisee of Pizza Hut and Wendys), Dean and Deluca, Le Pan Quotidien
- Department stores: Neiman Marcus, JCPenney
- Home goods: Pier 1 Imports, Art Van, Muji and Sur la Table
- Gym, health and fitness clubs: Golds Gym, 24-hour Fitness
- Vehicle rentals: Hertz, Advantage Rent a Car
These bricks-and-mortar struggles have reverberated through the U.S. commercial real estate leasing and mall industries. Mall owners such as CBL & Associates are reportedly seeking forgiveness or deferral of debt and interest payments, receiving audit opinions that include going-concern qualifications (auditor assessments that the business may not survive 12 months after the date of the audit opinion) and/or making plans to file for bankruptcy protection.4 Equity holdings in real estate investment firms are experiencing significant declines, in some cases, greater than 50%, in the first eight months of 2020. The delinquency rate on large commercial loans tied to real estate in the United States doubled month over month, reaching 5.78% in July 2020. According to Moody’s, the retail and hospitality industries accounted for 82% of the most seriously delinquent commercial loans.5
These financial troubles and the rise in bankruptcy filings are also affecting supply chains and third-party logistic companies. As people remain at home and stores shutter, demand for products sold through in-store sales is diminishing.
Commercial U.S. bankruptcy filings since the onset of government ordered shutdowns due to COVID-19
Despite this already tenuous outlook, things may become significantly worse after government support programs such as the PPP begin to expire. Even with the current support, many small businesses, which employ almost half of the of the U.S. workforce,6 have been forced out of business. Yelp.com reports that approximately 60,000 local businesses, or companies with fewer than five locations, permanently closed between March and July 2020.7 If government support expires, there may be a sharp increase in small business failures, leading to additional unemployment and continued reductions in consumer spending.
In the coming months, these wide-ranging economic troubles may have a profound impact on companies operating in the retail industry. Such companies should be mindful of how potential customer bankruptcies could affect their business and be prepared to handle such issues if they arise.
For more information on this topic, read our recent article 5 considerations if your client files for bankruptcy.
1 Goolsbee, A. (2020, February 13). Never Mind the Internet. Here's What's Killing Malls.
2 Coresight Research (2020, August 21). US and UK Store Openings and Closures Tracker – 2020 Week 34.
3 Santiago, L., & Kapner, S. (2020, July 16). Which Stores Are Opening or Closing Amid the Covid Retail Shakeout?
4 Thomas, L. (2020, July 25). These retailers filed for bankruptcy in 2020.
5 American Bankruptcy Institute (2020, August 13). Worried Lenders Pounce on Landlords Unable to Pay Their Loans.
6 Facts & Data on Small Business and Entrepreneurship. (n.d.).
7 American Bankruptcy Institute (2020, August 12). Analysis: Small Firms Die Quietly, Leaving Thousands of Failures Uncounted.
Call us at +1 213.873.1700, email us at firstname.lastname@example.org or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by Chris Fitzgerald and originally appeared on 2020-09-28.
2020 RSM US LLP. All rights reserved.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Vasquez & Company LLP is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Vasquez & Company LLP can assist you, please call +1 213.873.1700.
Subscribe to receive important updates from our Insights and Resources.