Coronavirus could make iconic department store a relic of the past

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The department store, once a proud symbol of American excess and upward mobility, threatens to descend into obscurity due to the coronavirus, with Neiman Marcus, JCPenney and Lord & Taylor all exploring bankruptcy.

Neiman Marcus, which also operates two Bergdorf Goodman stores in New York and 22 Last Call discount stores, was in distress long before the coronavirus halted non-essential shopping. The company’s sales and revenue have fallen as competition increases from online startups and brick-and-mortar stores launched by brands previously sold primarily in department stores.

The company missed a key interest payment of $5.7 million this month to pay off its $4.7 billion debt. This reported a net loss of $31.2 million in July, compared to a net loss of $19.9 million the previous year.

JCPenney was also struggling long before the pandemic forced the company to close its 850-store fleet. The company’s stock is worth less than $1 as it struggles to manage crippling $3.7 billion in debt.

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Lord & Taylor also struggled to increase profits. Hudson’s Bay Company sold the department store to subscription company Le Tote last year for $75 million. Under the deal, Le Tote would take over the ailing department store’s 38 locations, e-commerce site and inventory, while Hudson’s Bay would pay rent for three years. The company reported a loss of $119 million in fiscal 2018, according at Bloomberg.

The economic impact of the coronavirus has accelerated changes in retail, transforming the industry into a land of winners and losers.

The pandemic “has created unprecedented challenges,” a JCPenney spokesperson told NBC News in a statement. The company “has been engaged in discussions with its lenders since mid-2019 to assess options for strengthening its balance sheet and maximizing its financial flexibility, a process which has become all the more important as our stores have also closed due to the pandemic,” the company added.

Neiman Marcus and Lord & Taylor did not immediately respond to requests for comment.

Companies such as Neiman Marcus, in debt in part because of its 2013 leveraged buyout by private equity firm Ares Management and the Canada Pension Plan Investment Board, lack the balance sheets to weather the storm, according to Mathew Christy, an analyst at S&P Global.

“Neiman was a case where he was in great distress,” he said. “The resulting recessionary conditions will leave stores like Neiman Marcus in a weak position.”

A turnaround for department stores like Lord & Taylor can be an uphill battle in such brutal market conditions for mall retailers.

Overall retail sales fell 8.7% last month, the largest decline checked in. With traffic coming to a halt, department stores have taken dramatic steps to prevent their businesses from losing money, from firing thousands of employees to closing their stores.

J-Crew would be in the process of preparing a bankruptcy filing it could happen as early as this weekend. The private company is working to secure $400 million in financing. A spokesperson for J. Crew declined to comment.

Macy’s, which also owns Bloomingdale’s, has hired investment bank Lazard to explore ways to recapitalize its finances, according to Reuters. He also reportedly hired debt restructuring lawyers at Kirkland & Ellis LLP. Macy’s was removed from the S&P 500 Index in March after its market capitalization fell 75% in one year to just $1.5 billion.

Some companies, including L Brands – which owns Victoria’s Secret and Bath & Body Works – have skipped rental payments in a last-ditch effort to cut costs. Sycamore Partners, which agreed to acquire a 55% stake in L Brands in February for $525 million, try to back out of the deal, saying the company breached the deal when it closed its stores and failed to pay rent in April. The February deal was aimed at siphoning off Victoria’s Secret, which has largely failed to keep up with changing consumer tastes for comfortable lingerie, while its successful Bath & Body Works brand continues to boost sales.

“L Brands’ problems are not new,” said Neil Saunders, retail analyst at GlobalData. “It definitely speeds up the process, but it’s not the root cause of the problems.”

The proportion of retailers expected to default will likely rise from 4.7% to at least 14% over the next 12 months.

More than 50% of major mall flagship stores are expected to close permanently by the end of next year, according to property analytics firm Green Street Advisors. Department stores still make up about 60% of mall anchor space, putting a lot of pressure on mall owners, according to the commercial real estate research firm.

“Covid will push forward several years of fallout on retailers,” the company said in a report released Tuesday. “The only certainty is that there will be far fewer department stores in the future and shopping centers will have to adapt.”

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According to rating agency Moody’s, the retail sector is expected to continue to struggle next year, despite measures to suspend or cut dividends, cut rents, slow capital spending and lay off employees. employees.

Once the economy reopens, retailers will likely reduce inventory saved to free up space for new merchandise, leading to lower margins, according to Moody’s. As a result, he expects the default rate for U.S. retailers to climb to around 14.4% in March 2021, from around 4.7% this year.

“These sectors that were weak to begin with, they’re all going to look weaker coming out,” said Mickey Chadha, vice president and chief credit officer at Moody’s. “Because when you come out of this, whatever the timing, you’ll be in an economic downturn, and that’s all negative.”

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