The coronavirus pandemic has hit brick-and-mortar retail hard, and while online sales have soared, they don’t come close to covering the losses resulting in bankruptcies and deep cost-cutting. While beauty is a resilient sector, it has taken a hit due to shifting consumer demands and the retail shutdown.
Big-box retailers like Target and Walmart, worried about competition by Amazon, have been investing in building their online business, adding curbside and delivery options that prepared them to weather the pandemic. In addition, they had cash on hand and large supply networks, and most were deemed essential, allowing them to remain open.
- More than 40 retailers have filed for bankruptcy so far in 2020.
- Personal consumption expenditures increased a seasonally adjusted 1.9% in July from the prior month according to the Commerce Department.
- Recent data shows Americans’ retail shopping through July had surpassed pre-pandemic levels.
- Walmart, Amazon, Target, Home Depot, Lowe’s, and Costco accounted for 29.1% of all US retail sales in the second quarter, according to Craig Johnson, President of consulting firm Customer Growth Partners, up from 25.6% in the same period a year ago.
- Sales at smaller retailers fell 7% between March and mid-August compared with the same period last year, according to Womply, a data firm which tracks revenue at more than 70,000 small US retailers.
- Coresight Research estimates 25% of America’s roughly 1,000 malls will close over the next three to five years.
EXPERTS ARE SAYING:
“What we know with certainty with the pandemic is that we don’t know,” says Simeon Siegel, BMO Capital Markets Managing Director. “The prior rules of retail placement simply no longer exist.”
“There is an appetite [for bankrupted retailers] and we are seeing it,” Perry Mandarino, head of restructuring and co-head of investment banking for B. Riley FBR, said in an interview with CNBC. “If you have a good brand and if you have a good, loyal customer base, you will have interest and you will survive.”
“Just because retail space has gone vacant or remained fallow does not mean that it is automatically a good candidate for repurposing into industrial space,” Moody’s Analytics real estate analyst Victor Calanog said to CNBC.
Ulta: Net Income Falls as E-Commerce Increases
- According to an Ulta company press release, Q2 ended with record e-commerce sales up by more than 200%, but net income falling by 95%, to just $8 million.
- Overall sales decreased by 26.3% to $1.22 billion compared with $1.67 billion in the second quarter of fiscal 2019. This decrease is still an improvement over Ulta’s fiscal Q1 sales decrease of 33%.
- Because of omnichannel growth over the last two quarters, the brand has accelerated plans for the opening of its Jacksonville, Florida, fulfillment facility, increased order-processing capacity in its existing distribution centers, and expanded ship-from-store capabilities to an additional 100 stores.
- “We believe it’ll take some time to fully return to pre-COVID levels and expect demand will continue to be suppressed for the rest of the year, given the likely ongoing disruptions we’ll see as we continue to live with the realities of COVID-19,” CEO Mary Dillon said on an earnings call, according to a transcript on Seeking Alpha.
Sephora: Initiates Restructuring Process
- The retailer is cutting 117 full-time jobs, about 7% of its full-time corporate workforce, with a number of the roles associated with the J.C. Penney partnership, as part of a restructuring process.
- The company decreased its reliance on contractors, adding 132 net new full-time jobs.
- “The COVID-19 pandemic has had a profound impact across the retail industry and required that we accelerate our review,” Sephora said in a statement.
- The goal is for Sephora teams to be more effective and agile, and better positioned for the future, the company said. “We will have leaner and more dynamic teams, with a sharp focus on the new environment that all retailers face, as well as new centers of excellence in areas of growing importance to the business—store and online experience.”
SpaceNK: Closing All US Freestanding Stores
- In June the retailer announced it was closing all eight freestanding US stores to focus on its wholesale business, which includes partnerships with Bloomingdale’s and Nordstrom.
- The stores will close as leases expire, or will be assigned or sublet, according to a company spokeswoman. Over the next three months they will stop trading from the stores and begin a transitional project that will result in a second full-service wholesale business by March 2021.
- “Our premium, full-service, wholesale model has quickly become the largest, fastest-growing and most profitable channel within the SpaceNK U.S. business,” said SpaceNK Chief Executive Officer Andy Lightfoot in a statement to WWD. “We believe this is the right future model for SpaceNK in the U.S. and as a result have embarked on a major refocus and restructure, putting this at the heart of our operation.”
- SpaceNK.com will continue to operate as it does today.
- According to WWD, sources said SpaceNK’s US retail stores have struggled with profitability.
Estée Lauder Companies: Closing Stores and Reducing HeadCount
- The brand announced a Post-COVID Business Acceleration Program that will be a two-year initiative.
- The plan involves the permanent closure of between 10-15% of its international freestanding stores, “as well as certain less productive department store counters that the company elects to close.”
- As a result, there will be a reduction of 1,500 to 2,000 positions, “primarily point of sale employees and related support staff in the areas that were the most disrupted.”
- Estée Lauder reported a loss in its 2020 fiscal fourth quarter (ending June) of $0.46 billion, versus net earnings of $0.16 billion in the same period the prior year. In the three months to June, sales were down by 32% to $2.43 billion.
Nordstrom: Among Department Stores, Best Chance of Survival
- Net sales fell 53% during the second quarter, as its stores took a hit from being temporarily closed, and online business suffered due to a shift in the timing of its annual Anniversary Sale.
- Nordstrom saw a loss of $255 million, or $1.62 per share, from net income of $141 million, or 90 cents a share, a year ago. Analysts had been calling for a loss of $1.48 per share.
- Revenue, which includes sales from credit cards, fell to $1.86 billion from $3.87 billion a year ago, short of the $2.38 billion that analysts estimated. Net sales fell 53% to $1.78 billion from $3.78 billion one year earlier.
- Full-price stores net sales were down 58% from a year ago, while off-price business suffered a decline of 43%.
- Department stores were flailing far before the pandemic hit, but Nordstrom is widely seen as having the best chance of survival. It adopted e-commerce early, has a robust off-price operation, and has a reputation for excellent customer service and in-store shopping experience.
- “As we emerge from this disruptive period, our ambition is for Nordstrom to be positioned as a retail winner by gaining market share and driving profitable growth,” Chief Financial Officer Anne Bramman said in a statement.
Neiman Marcus: Bankruptcy Proceedings Continue with Store Closures
- The retailer announced the shuttering of five locations, as well as 17 of its off-price Neiman Marcus Last Call stores including the Hudson Yards location in New York City, which opened just over a year ago.
- “As part of our Chapter 11 proceedings, we provided to the court a list of Neiman Marcus stores that we will close,” a Neiman Marcus Group spokesperson said in a statement to Business Insider. “These store closures will help ensure the continued long-term success of our business and underscores our unrelenting focus on providing unparalleled luxury experiences and engagement.”
Lord + Taylor: Initiation of Chain-Wide Liquidation Sale
- All 38 department store locations have begun going-out-of-business sales led by a joint venture of Hilco Merchant Resources and Gordon Brothers.
- “While we are still entertaining various opportunities, we believe it is prudent to simultaneously put the remainder of the stores into liquidation to maximize value of inventory for the estate while pursuing options for the company’s brands,” Ed Kremer, Lord & Taylor’s Chief Restructuring Officer, said in a statement.
Macy’s: Announce Layoffs and Parts Ways with Rachel Shechtman
- At the end of June Macy’s announced it was cutting 3,900 corporate jobs representing 3% of its total workforce and about a fourth of its corporate workforce.
- The layoffs are expected to result in a savings of about $365 million in fiscal 2020 and save roughly $630 million on an annualized basis.
- As part of the restructuring, Rachel Shechtman, Macy’s Inc.’s Brand Experience Officer and one of the store’s highest-profile executives leading innovation efforts, has departed. Her retail concept Story, which Macy’s acquired in 2018, will remain part of Macy’s gifting strategy.
- “While the re-opening of our stores is going well, we do anticipate a gradual recovery of business, and we are taking action to align our cost base with our anticipated lower sales,” Chief Executive Jeff Gennette said in a statement. “We know that we will be a smaller company for the foreseeable future, and our cost base will continue to reflect that moving forward.”
- In early June the retailer raised $4.5 billion in new financing to help it weather the crisis. It plans to spend about $180 million in fiscal 2020 for the fresh restructuring moves.
Stein Mart: Filed for Chapter 11 Bankruptcy
- Off-price retailer Stein Mart, which operates 281 stores across 30 states in the US, filed for Chapter 11 bankruptcy protection on August 12.
- The retailer has initiated a liquidation process, kicking off a going-out-of-business sale with plans to close most of its stores.
- Stein Mart said it is evaluating alternatives, including the potential sale of its e-commerce operations and intellectual property.
- Hunt Hawkins, Chief Executive Officer and Chief Financial Officer of Stein Mart, said in a statement, “The combined effects of a challenging retail environment coupled with the impact of the Coronavirus [COVID-19] pandemic have caused significant financial distress on our business. The Company has determined that the best strategy to maximize value will be a liquidation of its assets pursuant to an organized going out of business sale. The Company lacks sufficient liquidity to continue operating in the ordinary course of business. I would like to thank all of our employees for their dedication and support.”
- Stein Mart has brought on Foley & Larder as its restructuring counsel, Clear Thinking Group as its restructuring advisor, and PJ Solomon as its investment banker.
J.C. Penny: Racks Up Losses
- After a June rebound, July saw heavy operating losses in July, according to a recent court filing.
- Operating loss came to $164 million in July on revenue of $564.3 million. That compares to operating profit of $79.3 million for June and is also more than double May’s operating loss, which came amid store closures and depressed revenue. Net loss for July came to $342.1 million.
- The company’s cash position remains relatively strong, with nearly $1.5 billion in cash and cash equivalents.
- Lawyers for the retailer indicated about a month ago the business was moving swiftly to sell itself in Chapter 11 but deadlines have been extended, anticipated hearings have ended without announcements, and a bankruptcy judge has made clear his impatience with the stakeholders fighting over the retailer’s future.
- Numerous outlets have reported Penney’s major landlords, Simon Property Group and Brookfield Property Partners, are bidders for the retailer, along with private equity firm Sycamore Partners and Hudson’s Bay Co., owner of Saks Fifth Avenue.
Target: Hits Growth Record
- The retailer set a record for same-store sales that drove profits up by an eye-popping 80.3% to $1.7 billion.
- Sales online and stores open for at least a year climbed by 24.3% during the quarter—an all-time high for the retailer.
- Same-store sales climbed by 10.9% and digital sales nearly tripled from a year earlier.
- Beauty sales grew by more than 20%.
- Curbside pickup service increased by more than 700% and sales fulfilled by its online delivery service Shipt grew more than 350% year over year.
- The company attracted 10 million new digital customers in the first half of 2020.
- The retailer’s second-quarter net income soared by more than 80.3% to $1.7 billion, or $3.35 per share, compared to $938 million, or $1.82 per share, a year earlier.
- After excluding items, Target earned $3.38 per share, more than double the $1.63 expected by analysts surveyed by Refinitiv.
- The company’s total revenue rose 24.7% to $23 billion from $18.42 billion a year prior, beating analysts’ expectations of $20.09 billion.
Walmart: Divests Two Online Brands as Digital Sales Double
- US same-store sales climbed 9.3% and e-commerce sales surged 97%.
- Total revenue rose 5.6% to $137.74 billion from $130.38 billion last year, outpacing Wall Street’s expectations of $135.48 billion.
- Walmart CEO Doug McMillon said the company will look to build on these gains by adding a membership service. He did not say when that would launch or provide details about its perks. He said the program will speed up deliveries for customers through curbside pickup and delivery, strengthen relationships with them, and collect valuable data.
- After shuttering Jet.com last quarter, the retailer divested two more online brands. Shoes.com, which Walmart acquired for $9 million in 2017, is headed to private equity firm CriticalPoint Capital, according to Bloomberg, which first reported the news. Digital lingerie brand Bare Necessities, acquired less than two years ago, will go to Israeli apparel maker Delta Galil Industries.
Dollar Stores: Benefit from Pandemic Shopping Habits
- Dollar General
- Net sales rose 24.4%, to $8.7 billion, in Q2, while comps rose 18.8%.
- Even with pandemic-related expenses, operating profit was up 80.5%.
- The company plans to accelerate strategic pushes, including the rollout of Pickup and Fresh, its non-consumables initiative, and to remodel and relocate more stores than initially planned.
- Dollar Tree
- Posted strong sales increases, with comps up 11.6% in its Family Dollar banner and up 3.1% in its namesake banner. Operating income rose as well, by 39.4%.
Photo: Markus Spiske via Unsplash