Retail challenges amid coronavirus: Companies file for bankruptcy, lay off employees
With lockdowns, curfews, and strict social distancing measures, the coronavirus pandemic shuttered malls and retail stores across the world, disrupting businesses and inflicting deep pain on the retail sector.
People have also cut down their spending on most purchases apart from groceries and daily essentials, as many were laid off, have been given unpaid leave or were preparing for a possible loss of income due to the pandemic.
Many companies have filed for bankruptcy due to not being able to survive the financial burden of COVID-19, after having struggled for years with declining sales in their physical stores amid a rise in the popularity of online shopping.
"Store-based retail was already struggling with internet consumption trends before coronavirus, and now will be faced with accelerated demand shifts to the internet," Randal Konik, analyst at Jefferies, said in a note to clients last week.
Here are a few of the major companies struggling due to the coronavirus:
New York-based clothing chain J. Crew filed on Monday for Chapter 11 bankruptcy protection.
Companies that file Chapter 11 bankruptcy negotiate with creditors to restructure debt terms.
J. Crew said that lenders have agreed to convert $1.65 billion of its debt into equity. It’s also secured commitments for financing of $400 million from existing lenders Anchorage Capital Group, L.L.C., GSO Capital Partners and Davidson Kempner Capital Management LP, among others.
British fashion retailer Debenhams, which employs 22,000 people, entered administration on April 6 for the second time in 12 months as it tried to protect itself from legal action by creditors during the coronavirus pandemic which shut down 142 of its UK stores due to the lockdown.
It is liquidating its business in Ireland, permanently closing its 11 stores there, which the Mandate Trade Union is saying will lead to the loss of 2,000 jobs across the country.
US telecom giant Frontier Communications filed for Chapter 11 bankruptcy on April 14. Its restructuring plan is expected to reduce its debt by more than $10 billion.
Virgin Australia, one of Australia’s largest airlines co-founded by billionaire Richard Branson, succumbed to third-party led restructuring that could lead to a sale, after the Australian government denied the company’s pleas for a bailout.
The company owes $4.39 billion to more than 10,000 creditors and is seeking a three-month payment waiver from aircraft lessors, its administrators said on April 24.
Private-equity firm Sycamore Partners refused to buy a majority stake in Victoria’s Secret the largest lingerie retailer in the US, for $525 million, saying that the parent company L Brands violated the contract, by furloughing most of the workers, failing to pay April rent for US stores and being stuck with outdated merchandise, among other things.
L Brands said on May 4 it agreed to end the sale of Victoria’s Secrete to Sycamore Partners, i.e. L Brands may not have many other options to save itself.
The iconic New York City department store Saks Fifth Avenue missed its mortgage payments in April and is offering deep discounts in an attempt to entice shoppers. Last week, the parent company, Hudson Bay Company, said it will have to lay off 507 retail staff in New York City.
JCPenny is talking to lenders about impending bankruptcy protection to ease its $4.3 billion debt. MarketWatch says the retailer is seeking $1 billion in bankruptcy financing.
Discount shoe retailer Payless said in mid-February it was closing all 2,700 of its stores in the US, and that it planned to file for bankruptcy for the second time in two years.
US department store Neiman Marcus sought bankruptcy protection in April, Reuters reported citing people familiar with the matter.
The coronavirus pandemic forced the company to temporarily shut all 43 of its Neiman Marcus locations, roughly two dozen Last Call stores and its two Bergdorf Goodman stores in New York.
Neiman Marcus is in the final stages of negotiating a loan with its creditors totaling hundreds of millions of dollars, which would sustain some of its operations during bankruptcy proceedings, according to the sources. It has also furloughed many of its roughly 14,000 employees.
US retailer Lord & Taylor, which was founded in 1826, plans to liquidate inventory in its 38 department stores once coronavirus restrictions are lifted as it prepares for bankruptcy, Reuters reported on May 6.