More retailers facing store closures, bankruptcy in 2021

13 Iconic Retailers Sink Into Pandemic Bankruptcy

More retailers facing store closures, bankruptcy in 2021

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En español | COVID-19 did not create the so-called retail apocalypse. More than 9,300 U.S. stores closed in 2019, and over 5,800 did the year before that, according to tracking by Coresight Research. A timeline by business analytics firm CB Insights dates the apocalypse to at least 2015.

But the pandemic has been its most swiftly destructive horseman. Following years that saw major retailers swapping hands in debt-bingeing buyouts while consumers shifted from shopping malls to shopping online, the mass shutdown of 2020 pushed some of America’s most iconic brands to the brink.

The pandemic year has brought a parade of headline-making Chapter 11 filings, with historic department stores and apparel purveyors at the front. And while bankruptcy doesn’t necessarily mean business, don’t be surprised to see favorite locations shutter. Here are some of the biggest-name bankruptcies to date and what their reorganizations might bring.

Ascena Retail (Lane Bryant, Ann Taylor)

Founded: 1962 (as DressBarn)

Filed for bankruptcy: July 23, 2020

The company behind some of the best-known brands in women’s fashion is shedding some 1,600 of its approximately 2,800 stores as part of a Chapter 11 restructuring aimed at paring around $1 billion in debt. Under a reorganization plan set for court confirmation in November, the debt will be converted into equity, turning over control of the company to its lenders.

Ascena’s biggest names — plus-size bellwether Lane Bryant and premium brands Ann Taylor, Loft and Lou & Grey — are losing a “select number” of stores, according to a company statement. Two other brands — tween fashion chain Justice and plus-size line Catherines — have been sold as part of the bankruptcy process, with Catherines shifting fully to online sales.

The original bankruptcy filing came about seven months after Ascena liquidated the last stores in its original line, DressBarn, which now operates online only under new ownership.

Brooks Brothers

Founded: 1818

Filed for bankruptcy: July 8, 2020

The brand that for generations defined the American way of dressing for success — especially the American male executive way — faced strong headwinds as people increasingly dressed down for the office and then, with the pandemic, stopped going entirely. When it entered Chapter 11, the country’s oldest ready-to-wear clothing retailer had already opted not to reopen 20 percent of its roughly 250 U.S. stores that went dormant in March, and it’s expected to close its three U.S. factories.

In a post on its page, Brooks Brothers said bankruptcy proceedings would help it facilitate an ongoing sale process while managing “what has been an incredibly challenging period for all industries, especially retail.

” A joint venture of mall developer Simon Property Group and Authentic Brands Group, a brand-management firm, won court approval Aug. 17 to buy Brooks Brothers for $325 million.

The new owners pledged to keep at least 125 Brooks Brothers stores open.

The joint venture, called the Sparc Group, has also purchased bankrupt jeans retailer Lucky Brand (see sidebar).

CEC Entertainment (Chuck E. Cheese)

Founded: 1977

Filed for bankruptcy: June 25, 2020

The 600-plus restaurant chain — whose pizza, arcade games and (until it was retired last year) animatronic band fueled countless raucous kids’ parties — was especially hard-hit by a pandemic that halted dining out and large gatherings virtually overnight. The company saw revenue plummet by 90 percent, increasing pressure to deal with nearly $1 billion in long-term debt.

As of late October, CEC, which also owns the similarly themed Peter Piper Pizza chain, had reopened 346 of its 555 company-run outlets that were shuttered in spring by the pandemic.

(Some locations are franchised and are not parties in the Chapter 11 process.

) While the company says it plans to continue reopening restaurants “as it is safe to do so,” it has permanently closed about four dozen locations.

In the meantime, CEC secured court approval in October to raise $200 million in financing for business operations and costs associated with a reorganization plan the company says has been approved by a majority of creditors.

Century 21 Stores

Founded: 1961

Filed for bankruptcy: Sept. 10, 2020

The family-owned department store that pioneered off-price retail in downtown Manhattan will wind down operations and close all 13 of its mostly New York City–area locations under Chapter 11 proceedings. The company (which is not affiliated with the similarly named real estate firm) immediately commenced a chainwide going-out-of-business sale.

Billing itself as “New York’s Best Kept Secret,” Century 21 offered deep discounts on designer clothes and accessories.

The original store, located in the shadow of the World Trade Center, survived the 9/11 terror attacks.

But the company was unable to outlast the pandemic, blaming its demise on insurers declining to pay $175 million in claims Century 21 contends it is owed under business-interruption policies.

“Without receipt of the insurance proceeds, there was no viable alternative but to begin the shutdown,” the company says in an FAQ for customers. A lawsuit Century 21 filed against its insurance providers is being folded into the bankruptcy case.


3 Big Factors That Could Lead to More Retail Bankruptcies and Store Closures This Year, According to Experts

More retailers facing store closures, bankruptcy in 2021

Last year, the coronavirus pandemic led dozens of retailers to file for Chapter 11 protection or scale down their brick-and-mortar footprints. But even with COVID-19 vaccinations and fiscal stimulus on the way, some experts are concerned that more bankruptcies and store closures could plague the retail sector in the year ahead.

According to financial advisory services firm BDO USA, the first month of 2021 already saw four retail bankruptcies, including women’s clothier Christopher & Banks — and the first half is expected to see even more Chapter 11 filings, albeit at a slower rate than 2020, which recorded the largest number of bankruptcies since the financial crisis more than a decade ago. As for store closures, the firm reported that 36% of retailers plan to eliminate or consolidate their floor space as a means of cost optimization and 31% intend to reduce their mall-based locations.

“You’re going to see more store closures this year than bankruptcy filings, but it won’t be anywhere near the numbers we saw in 2020,” said David Berliner, leader of BDO’s restructuring and turnaround services practice. “Retail is getting concentrated in fewer and stronger players across certain sectors, [and] there are still going to be some losers if COVID lingers on.”

Here, what experts say could worsen those challenges for some retailers and push them to the brink of bankruptcy or mass shutdowns.

A weak financial cushion

In the fall of 2019, a BDO survey found that 83% of CFOs anticipated an increase in revenues over the following 12 months. Then, the health crisis struck, affecting the cash flow of retailers both big and small.

Many companies faced a shortage of liquidity, became overburdened with debt or weren’t in a position to secure outside capital.

Unable to invest in product development, marketing efforts and more aspects of their business, they were slow to pivot to consumers’ needs.

“The strong get stronger, but it’s very hard for those retailers that are weaker to keep up because they’re spending money that [their stronger counterparts] are using to improve their websites and build contactless systems that customers now seem to want,” Berliner told FN.

On top of widening the divide between smaller players and big box giants (think Walmart and Target), the outbreak has accelerated the shift to digital and omnichannel services, buy online, pick-up in store and curbside pickup — trends that experts say are ly to remain popular post-COVID-19.

“Regardless of whether they are brick and mortar or e-commerce, retailers need to focus on where consumer demand is in order to survive the pandemic,” said Jen Rapp, VP of brand and communications at marketing automation platform Klaviyo. “The shift in shopping trends certainly shows how consumer habits are changing, the challenges that physical retail is facing and how brands will need to innovate in order to survive.”

A dependence on mall space

Prior to the health crisis, many shopping centers were suffering declines in foot traffic and uneven momentum. As the outbreak made its way across the U.S., visits to malls came to a near standstill amid government orders that mandated the temporary closures or limited the capacities of nonessential stores.

Last year, at least a dozen mall-based retailers — some of them anchor tenants at those shopping centers — filed for Chapter 11 protection: In the first half of 2020, JCPenney, Neiman Marcus and J.

Crew were among the boldface names that went bankrupt, while the second half saw the bankruptcies of Brooks Brothers, Francesca’s and Lucky Brand, as well as Lord + Taylor parent Le Tote and Ann Taylor owner Ascena Retail Group.

Many of these tenants have also exited malls, which have been left with an increasing number of vacant spaces that can make them less attractive.

A dearth of stores — and large, unfilled anchor spaces — can become an impediment for retailers that remain in such malls either by choice or because they’re stuck in long-term leases they’re unable to abandon.

Shopping centers themselves have also been vulnerable: In November, two major mall owners — CBL & Associates Properties Inc. and Pennsylvania Real Estate Investment Trust — filed for Chapter 11 protection amid a sharp decline in shopper visits and challenges with tenants paying rent.

“[Retailers] don’t want to be totally dependent on indoor shopping malls anymore,” Berliner said. “In addition to increasing e-commerce, they’re also starting to look at moving to off-mall locations as they restructure their business models. They may not need stores that are as large as what they used to have, and having fewer and more targeted stores will enable more flexibility.”

Many of those companies downsized their brick-and-mortar fleets — a move also made by retailers with healthy balance sheets that sought to move to off-mall locations or go smaller in format, while leveraging their omnichannel services or upping investments in their e-commerce platforms.

“In some industries or for certain products, an in-person experience can be important in either being used as a showroom before an online purchase or providing an opportunity for someone to try a product before making a purchase.” Rapp explained.

However, she added, “online retailers are already one step ahead of brick-and-mortar stores, so those transitioning to e-commerce for the first time will be faced with the most challenges as they work to test different methods in order to recreate that in-store shopping experience.”

According to Moody’s Analytics, the bankruptcy filings and store closures of such retail tenants contributed to record-high vacancy rates, which spiked to 10.5% by Q4 2020 — the highest in two decades and up from 9.7% in the prior year period.

Coresight Research also estimated that a quarter of the U.S.

’s roughly 1,000 malls will shutter over the next three to five years as previously vacant spaces could be repurposed as healthcare facilities, distribution centers and other non-retail uses.

An onslaught of returns

For some experts, the amount of returns experienced by beleaguered retailers could become their tipping point toward bankruptcy.

According to a survey from the National Retail Federation, consumers returned an estimated $428 billion in merchandise last year — roughly 10.6% of total U.S. retail sales in 2020 as a whole. On average, retailers anticipate that 13.

3% of merchandise sold during the holiday shopping season — or an estimated cost of $101 billion — will be returned.

Plus, although the total rate of returns is in line with recent years, the trade group noted online returns more than doubled last year from 2019 and is considered “a major driver of the overall growth of returns.”

“Returns inevitably occur, and that can really play on the bottom line. We still haven’t seen all the final results — what the profit and loss looks — from the fiscal year ending in January,” Berliner said.

“[What’s more,] the first part of the year is usually about restocking for spring, but with the recent supply chain disruption, some stores don’t have the right merchandise, and that could be a cash flow hit for those that are struggling.

There could be some [bankruptcy] filings because of events such as those.”


Stage Is Set For Another Record-Breaking Year Of Retail Bankruptcies: Who’s Next?

More retailers facing store closures, bankruptcy in 2021

Another victim of the Recession.


By any measure, 2020 was a brutal year in business, ending up with a record number of more than 160 consumer-facing businesses filing for bankruptcy, including the 35 retailers below, and 12,200 store closings.

35 Retail Bankruptcies 2020

Unity Marketing

Already in January 2021, Christopher & Banks CBK filed for Chapter 11 with plans to close most of its 449 stores and Godiva Chocolatier announced it will close all 128 North America stores, though the brand will be available online, through various stocking retailers and in its international stores.

The pace is sure to quicken with the expectation that this year even more and perhaps even bigger retailers will seek bankruptcy protection.

“It seems inevitable that there will be more retail bankruptcies in the months ahead, including some household names,” shares Dan Guyder, Partner at global law firm Allen & Overy. “Some of these were bound to happen with or without the pandemic, but that disruption accelerated the process.”

Short cash reserves

Providing perspective on the financial challenges retailers face this year, BDO just completed a survey among 100 CFOs with retail companies ranging from $250 million to $3 billion in revenues. At the time of the survey, nearly half (49%) said they have only enough cash on hand to get through the next three months. Another 41% have only three to six month cash reserves.

Fewer than 20% of CFOs describe their retail businesses as thriving, leading 42% to see restructuring or reorganization as a possible option. However, it may buy a distressed retailer time, but not be the fix needed.

Some troubled retailers, which are able to emerge rapidly after restructuring under bankruptcy, often find themselves back in shortly thereafter, “illustrating that debt reduction alone is not a cure-all if the underlying problems are not addressed,” the report notes.

Neiman Marcus, J.C. Penney, J. Crew, Tailored Brands and Ascena Retail Group are ly candidates to follow that path and return to the courts again.

“These retailers continue to struggle with declining traffic, an aging customer and boring or irrelevant design,” says Brien Rowe, managing director of consumer and retail for investment banking firm D.A. Davidson.

“If you put a list of issues together, it’s a retailer that is mall-based and/or that doesn’t have a product that lends itself well to e-commerce or a customer that doesn’t buy that way or it hasn’t made the transition yet,” he adds.

Pre-existing conditions put retailers at-risk in 2021

To compile a short-list – which became quite long – of retailers at most risk of bankruptcy in 2021, I turned to RapidRatings.

It uses an algorithmic approach to evaluating the financial health of companies on a quarterly basis, including both public and private companies. Its ratings include two scores on a 1-100 index scale, allowing for apples-to-apples comparisons across groups of companies:

  • Financial Health Rating (FHR) measures short-term resiliency and default risk using liquidity, leverage and earnings performance. An FHR below 40 is considered “high risk.” Industry-wide the FHR score was 58.52 for retailers in 2020.
  • Core Health Score (CHS) analyzes medium-term (2-3 year) risk and how efficiently a company is structured and operated. Throughout 2020 the average CHS score was 48.65 for retailers.

“Financial health is a good deal actual health, in that companies in the best position to withstand a shock came into the crisis relatively healthy. Conversely, those retailers that entered in deteriorating health have fared worse for the most part,” explains James Gellert, CEO of RapidRatings, adding that his company’s ratings are measures of financial health, and not credit ratings.

The analogy to health is particularly apt now. “Just as the Coronavirus is more deadly to someone with a pre-existing condition, so too are the effects of this retail crisis more deadly to a company with a pre-existing condition,” he says.

“Retail went into the pandemic crisis in its own crisis, so it is having a compound effect. Some companies that managed to survive the first nine months of the pandemic have been destabilized to the point where their problems are only going to get deeper in 2021,” Gellert adds.

Retail is particularly vulnerable this year since it is so dependent on an efficient and effective supply chain, which has been the under-the-radar casualty in retail’s pre-existing crisis leading up to the even worse pandemic crisis.

“Retail bankruptcies are just the tip of the iceberg. What’s underneath the waterline is much bigger,” Gellert shares. “The crisis was a destabilizing force throughout the retail supply chain. Retailers have a tough enough time as it is without massive supply chain disruptions to compound their problems.”

Fashion retailers, in particular, have suffered from this compounding supply-chain problem. They were forced to greatly reduce orders with their suppliers, even canceling whole seasons, putting their supply companies into distress too, thus compounding problems for other retailers in the supplier’s network.

“Companies that are weakened from a financial perspective end up cutting corners or having to make strategic decisions to invest in one thing and not another.

And the ripple effect of those decisions go to weaken a whole group of supply companies and therefore an industry,” he says, adding that the word “agility” is a term used often to describe what is required for effective supply chain management.

Financially-weak retailers don’t have the needed agility.

Financial Health Ratings (FHR) indicate stress for at-risk retailers

Sitting at the bottom of the list of retailers with the lowest FHRs currently include:

  • Party City PRTY (17)
  • J. Jill JILL (17),
  • Children’s Place (21)
  • Healthier Choices Management (21)
  • Nordstrom JWN (23)
  • Destination XL Group DXLG (23)
  • Express (25)
  • Old Copper Company, formerly J.C. Penney (26)
  • Rite Aid RAD (27).

Other financially-stressed retailers which went into the fourth quarter 2020 with low FHR scores include:

  • Sears (21)
  • L Brands LB (25)
  • Wayfair W (25)
  • Barnes and Noble BKS (28)
  • Gamestop GME (29)
  • Macy’s M (29)
  • Shutterfly (33)
  • Overstock (39)

Beginning the year, Macy’s, Gamestop, Shutterfly and Sears remain financially weak. However, L Brands, Wayfair, Barnes & Noble and Overstock became more liquid during the fourth quarter so their FHR score rose.

While their short-term financial health has improved, they remain fundamentally weak in their Core Health Scores, so more work is needed to keep these companies going, especially if cashflow doesn’t improve substantially this year.

And these retailers have experienced the sharpest drop in FHR from 2019 to 2020, suggesting they may soon fall under the FHR 40 benchmark putting them into the “high risk” category:

  • Burlington Stores (-43 points)
  • Cato Corp (-37)
  • American Eagle Outfitters AEO (-33)
  • Ross Stores ROST (-26)
  • Genesco GCO (-24)
  • Tilly’s (-24).

RapidRatings track record is over 90% in predicting defaults for companies with an FHR that falls below 40, with J. Crew, Neiman Marcus, J.C. Penney, Ascena, Tailored Brands and Pier 1 fulfilling expectations in 2020.

Weak companies Overall Core Health Score (CHS)

Taking a longer-term perspective, RapidRatings finds these companies at the bottom as measured by their current Core Health Score (CHS):

  • Sonic Automotive SAH (19)
  • Cato Corp (21)
  • RealReal REAL (21)
  • Dillards DDS (21)
  • EZCORP EZPW (21)
  • Barnes & Noble (22)
  • Gaia (22)
  • ODP Corp [Office Depot/OfficeMax] (23)
  • American Eagle Outfitters (24)
  • Party City (25).

Add to that list Urban Outfitters URBN and Walgreens Boots Alliance, which both experienced major drops in their CHS scores from 2019 to 2020, -42 and -33 points respectively.

Gellert points out that these ratings don’t necessarily indicate who will file for bankruptcy next, since their debt may not be due for a while. But those with a low FHR and CHS rating have the weakest balance sheets, and those which have seen their FHR and CHS ratings drop most sharply over the past year may soon get on the “high risk” list.

Numbers tell part of the story

Just a physical health checkup where numbers one’s temperature and blood pressure don’t tell the whole story, neither do the FHR or CHS ratings. But they are telltale signs of inherent weakness for a company that may have been able to struggle on through a normal retail environment, but maybe not in one that is so challenging.

“A company can be weak from a core health perspective [CHS], but not terribly risky from a financial health perspective [FHR] perhaps because it raised a lot of money or has a lot of cash on hand. So they may not be at immediate risk of failure, but low scores [in CHS] means it radically needs to improve business at the fundamental level,” he says.

Such is the case for these four companies with fairly strong FHR scores but weak in the fundamentals:

  • Bed Bath & Beyond (CHS 26)
  • Abercrombie & Fitch (28)
  • Build-a-Bear Workshop (30)
  • Burberry Group (36).

“Then there are companies that are strong from a core health perspective but weak in a financial health rating. They desperately need liquidity,” Gellert concludes. “If the market is able to provide it with cash through debt or equity issuance, such a company may be able to survive. But if it can’t, it is at greater risk of default or bankruptcy.”

Note: This article was updated @ 6:30 a.m. January 24 with the addition of perspective on retailers with low FHS scores in third quarter 2020 and how they enter 2021.


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