Bankrupt J.C. Penney Will Shut Nearly 250 Stores As Coronavirus Continues To Batter Retail Industry

Some nonessential stores and malls have gingerly reopened even as the U.S. continues to grapple with the coronavirus pandemic, but some 25 store lease signs—recently counted along a half-mile stretch on Broadway in New York’s SoHo neighborhood—are a sobering reminder of the severe damage the retail industry has suffered.

J.C. Penney, which on Friday joined other retailers including J.Crew, Neiman Marcus, Stage Stores
SSI
and designer John Varvatos in filing for bankruptcy protection, said in a regulatory filing on Monday that its turnaround plan includes trimming nearly 30% of its about 850-store fleet, to about 604 stores, while doubling down on online sales. Most of the planned closings will take place in fiscal 2020, the company said.

However, its restructuring plan still faces long odds in the post-coronavirus world. Store visits by American consumers last week hit their second-lowest reading in the past ten weeks even as some merchants reopened in different pockets of the U.S., according to a Gordon Haskett consumer survey released on Sunday. The survey also found “a notable step back” in consumers’ willingness to visit various “high-traffic venues” including malls: Only about 28% of those in states that have lifted restrictions said they visited a non-essential store.

Don’t expect consumers to be in an impulse-buying or splurge mode, either: Nearly 90% of government-stimulus-check recipients said they planned to use that money to pay down debt, to save or to buy everyday items, found the survey, which was conducted last week. 

The result “continues to suggest a fairly guarded spending environment overall,” Gordon Haskett analyst Chuck Grom said in the report. “Re-opening optimism takes a step back as consumer aversion augments.” 

Other studies have found an even bigger hesitation about braving physical stores. Only 12% of consumers said they would immediately shop in stores once they reopened, a PwC survey this month found. That unease, even as stores and malls have installed some safety measures, has dampened the outlook for retailers more so than in other sectors. More than three times as many U.S. finance chiefs in the “consumer markets” sector versus all other industries in a separate PwC poll projected a decrease in sales and/or profits of more than 50% this year.

The scorecard is already looking ugly. Commerce Department on Friday reported a nearly 22% decline in April retail sales from a year earlier, the biggest drop on record, with clothing store sales alone seeing an 89% plunge, department stores a 47% drop, and furniture and electronics retailers a falloff of two-thirds. 

Also noteworthy: Stock-up trips and do-it-yourself buying from grocery stores, drug stores, home improvement stores and garden stores slowed in April from March, with online demand the only segment still seeing gains.

Even wholesale club Costco, a consistent industry outperformer, in April posted its first monthly sales drop in over a decade.

While J.C. Penney and some other bankrupt retailers expect to live on with a smaller footprint, Lord & Taylor is reportedly planning to liquidate its 38 department stores once store-opening restrictions are lifted. 

The list of those struggling is only growing bigger. Ratings agency Moody’s this month forecast the default rate among retail and apparel companies with non-investment-grade credit ratings would surge to 17.2% by April 2021, about three times its forecast just a month earlier. 

“Coronavirus will result in accelerated Darwinism for retail and apparel sector,” Moody’s said. In addition to J. Crew, J.C. Penney and Neiman Marcus, the “distressed retailers” list from Moody’s included drugstore chain Rite Aid
RAD
, regional department store Belk, sporting goods chain Academy, Ann Taylor parent Ascena, Petco and Party City
PRTY
.

Even for other retailers, weeding out underperforming stores is in order, especially when studies have found the U.S. has higher per-capita shopping square footage than other developed countries.

Office-supplies seller Office Depot
ODP
said in a regulatory filing last week that it plans to shut stores and cut about 13,100 jobs by the end of 2023, joining other chains including Macy’s
M
and Nordstrom
JWN
that have announced some closing plans. 

UBS forecast in April that about 100,000 stores in the U.S. will close by fiscal 2025, cutting the number of retail stores to 782,000, from 883,000 last year.

“The next 24 to 36 months will be … a forcing mechanism for many retailers, especially in the U.S., where there’s still a lot of stores and there’s still a lot of square footage,” Under Armour CEO Patrik Frisk said on a conference call last week. The athletic-gear seller hasn’t fared well, either. It swung to a first-quarter operating loss of $558 million, from a $35 million profit a year earlier, and blamed the coronavirus for a 23% slide in sales. 

The divide between retail’s winners and losers is only getting bigger, and that will mean more empty storefronts for those that can’t justify to consumers the new need to put up with lines and other social-distancing guidelines in the age of the coronavirus.

Related on Forbes: Potential Uber Eats-Grubhub combo would surpass DoorDash to create the largest U.S. food delivery app

Related on Forbes: As meat supply chains face disruption, plant-based players like Beyond Meat see an opportunity

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