In this March 19, 2020 photo, a pedestrian walks past a storefront for rent on Madison Avenue, in New York. (MARY ALTAFFER / AP)
Brick-and-mortar US retailers, challenged by growing online sales, now face a new and potentially crushing foe: the coronavirus pandemic.
Major department store chains have closed stores, cut executive pay, furloughed workers and borrowed heavily.
But it may not be enough to counter the slide in sales as buyers follow government directives to stay home.
There could be more than 15,000 store closures announced by retailers in 2020 due, in large part, to the coronavirus, Deborah Weinswig, CEO and founder of retail advisory and research firm Coresight Research told CNBC.
There could be more than 15,000 store closures announced by retailers in 2020 due, in large part, to the coronavirus, Deborah Weinswig, CEO and founder of retail advisory and research firm Coresight Research told CNBC
"I think we will see an increase in the number of Chapter 7 (bankruptcy filings)," she added. "Nobody knows how to deal with this."
Clothing retailers have been left with mountains of unsold goods valued at billions of dollars, but the old methods of clearing inventory are not working because the coronavirus keeps stores closed, The Wall Street Journal reported.
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Off-price chains such as T.J. Maxx that usually buy up unsold goods from other retailers have also shut their doors. And liquidators have snapped up merchandise from bankrupt retailers that have halted going-out-of-business sales.
Damage to real estate
The difficult times that major department stores now face could also damage the commercial real estate market. Green Street Advisors, a research firm, said department stores occupy about 30 percent of total mall area in the United States, and 10 percent of that is leased by J.C. Penney and Sears.
Neiman Marcus, the Dallas, Texas-based luxury retailer, may file for bankruptcy protection this week, Reuters reported. If so, it would be the first major US department store chain to break under the weight of stay-at-home orders that have eliminated foot traffic.
The company has temporarily closed its 43 Neiman Marcus stores, about 24 Last Call stores and two Bergdorf Goodman stores in Manhattan. It has furloughed most of its 14,000 employees.
Neiman Marcus is negotiating a loan of hundreds of millions of dollars that would keep the company alive during bankruptcy proceedings.
The company has also skipped debt payments.
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Standard & Poor's said Neiman Marcus owes about US$4.8 billion, some of it from the $6 billion buyout in 2013 by Ares Management, a private-equity firm, and the Canada Pension Plan Investment Board.
While the COVID-19 threat is new, online sales are not. And thanks to lower overheads, online retailers continue to grab market share in the retail sector.
In 2015, e-commerce sales represented 7.4 percent of the market. In 2019, the total had grown to 13.7 percent, or US$3.43 trillion of the US$25.03 trillion retail market－an increase of about 85 percent in four years.
