US apparel retailer bankruptcies among top in 2020

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By Michelle Russell | 19 October 2020

JCPenney was among the apparel retailers to have filed for bankruptcy this yearApparel and footwear companies are amongst the three retail industries to have suffered the most this year through bankruptcies as a result of the pandemic, new figures show, with the outlook remaining bleak. In the first six months of 2020, 18 retailers filed for Chapter 11 bankruptcy, with an additional 11 filing in July through mid-August, according to data from accounting and advisory service BDO United States. The defaults were concentrated in apparel and footwear, home furnishings, and food and department stores, with many prominent retailers filing during this time period, including J.Crew, Neiman Marcus, Stage Stores, JCPenney, Lucky Brand, Ascena, Le Tote (Lord & Taylor), Tailored Brands, and Stein Mart. Alongside the uptick of bankruptcy filings and liquidations so far in 2020, the industry has also seen a substantial rise in the number of store closings announced, with bankrupt retailers alone announcing almost 6,000 store closings.

From January through to mid-August, there have been more store closure announcements in 2020 than the record 9,500 stores that closed throughout 2019. The majority of store closures have taken place in malls, which have seen far less foot traffic due to sustained Covid-19 disruption. Apparel retailers alone have closed 2,368 stores, the data shows.

However, retailers on the brink of bankruptcy are not the only ones looking to shed their brick-and-mortar locations. There are more than 15 retailers that have not filed for bankruptcy—including Macy's and Gap—that have announced the closing of 50 or more stores, totalling a combined 4,200-plus stores. Inditex tops the list, with 1,000 store closures announced. The Children's Place closed 300, while L Brands closed 250.

Shifting consumer spending habits driven by the pandemic have added pressure for retailers to minimise their physical footprints and move toward more digital and omnichannel customer experiences. With discretionary spending down, research firm eMarketer projects a 10.5% decline in total US retail sales this year—with brick-and-mortar sales decreasing 14%. That said, these losses are expected to be partially offset by an 18% increase in e-commerce sales, following a 14.9% gain in 2019.

"Other consumer shopping trends already underway were only hastened by Covid-19," BDO United States says. "Even before the pandemic, many workplaces were shifting to more casual dress, decreasing demand for business formal attire. This trend, coupled with diminished need for new clothing for social occasions, has been devastating to apparel retailers and department stores, which have accounted for approximately 54% of bankruptcy store closings and 58% of non-bankruptcy store closings so far this year."

Looking to the second half of 2020 and beyond, BDO says that as the holiday season approaches and the dust settles to reveal trends from this year's back-to-school season, properly predicting and understanding rapidly changing consumer preferences will be key to retailers' success.

"To accurately forecast supply and demand and effectively manage inventory, retailers' holiday plans should already be well underway. This entails readying e-commerce operations for record levels of online shopping traffic, ensuring the reliability of fulfillment channels and last-mile delivery, and increasing contactless shopping options to safeguard the health and safety of consumers and employees."

BDO says retailers must also consider the web of impacts Covid-19 has had on the industry at large, including its influence on competitors, peers and partners.

It adds: "In short, 2020 is on track to set the record for the highest number of retail bankruptcies and store closings in a single year. Based on the trends set through mid-August, our expectation is that more retailers will struggle to navigate the effects of the pandemic—particularly those that are highly levered and mall-based. However, the number of filings in the fourth quarter may be tempered by retailers holding off on filing for bankruptcy in hopes of a profitable holiday season. While there's no precedent to predict how the end of 2020 will shake out, we expect that retailers that remain agile, leverage data to understand their customers and plan carefully will be better prepared to weather this year and beyond."

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