Many department stores failed to adequately reinvent their value for consumers following the 2008 financial crisis, leaving them particularly vulnerable during the pandemic shutdown. There is expected to be an enormous reduction in the number of stores and a permanent shift in the retail landscape and the relationships of brands.

In March, America’s total retail sales fell by 8.7% from the previous month, the biggest decrease in the three decades the government has been recording them. Behind that figure are some precipitous drops. Clothing sales fell by 51% and those of home furnishings by 27%.

Coresight Research estimates that bankruptcies and liquidations will increase this year, and 15,000 stores could permanently close, which is a sharp increase from 2019’s record 9,500-plus closures.

Federal COVID-19 stimulus measures will provide some liquidity help for healthy retailers, but not for highly leveraged and distressed retailers, according to a Monday report from Moody’s emailed to Retail Dive. That leaves private equity to “determine the fate of many distressed retailers,” analysts said in the report. Without bailout funds, private equity owners “will have to decide whether or not to inject capital into their retail portfolio companies in the form of additional equity or debt like instruments,” Moody’s analysts said.

Department stores could see their operating incomes decline by up to 40% in 2020, the worst of any retail sector, according to a report by Moody’s. The revised forecast, taking into consideration lost sales from the pandemic, steepened from a previous outlook of a 5% decline, Moody’s said.

“The department stores, which have been failing slowly for a very long time, really don’t get over this,” Mark A. Cohen, Director of Retail Studies at Columbia University’s Business School, told The New York Times. “The genre is toast, and looking at the other side of this, there are very few who are likely to survive.”

Lord & Taylor

• Le Tote, the subscription clothing company that acquired Lord + Taylor last year from Hudson’s Bay, citing “immense pressure on our liquidity position” let go of the entire executive team including the CEO.
• Hudson’s Bay committed to paying rent for Lord & Taylor for three years under the merger agreement, amounting to $77 million in total rent liabilities.
• Le Tote also owes Hudson’s Bay CAD $33.2 million (about $23 million) stemming from a promissory note from the deal.
• In an April 2 memo, the management of Le Tote and Lord & Taylor said only “key employees” were being retained to preserve the business and declined to comment or disclose the number of employees who were furloughed and laid off.
• Lord & Taylor is exploring a bankruptcy filing and other options including attempts to get relief from creditors and seeking financing.
• Payments to vendors have been suspended for at least 90 days.

“It appears to be a virtual certainty that Lord & Taylor will liquidate its business in the near future, either in or out of bankruptcy,” James Van Horn, a partner at Barnes & Thornburg and a specialist in retail bankruptcy, said to The New York Times. “They were already one of the most challenged department stores prior to the coronavirus pandemic, and when the majority of the management team is leaving, the vast majority of employees are laid off and a minority of employees furloughed, there does not seem to be any other strategy but to liquidate the inventory.”

Nordstrom

• The retailer canceled orders and put off paying its vendors.
• Nordstrom has taken a number of measures to cut costs and raise additional liquidity, including furloughing the majority of its workforce, canceling orders, putting off paying vendors, and suspending its quarterly dividend payment effective in its fiscal second quarter, drawing down $800 million on its revolving credit facility and halting share repurchases.
• Erik and Pete Nordstrom, Chief Executive and Chief Brand Officer respectively, are both receiving no base salary for at least six months.
• The chain has stunned some vendors with last-minute cancellations via email in recent days.
• CNBC reported the retailer raised $600 million by placing a handful of its real estate assets into a separate company and borrowing against the new entity by issuing bonds.
• Unlike its competitors, Nordstrom has a smaller portfolio consisting of 380 locations, including its off-price Nordstrom Rack business, all primarily located in higher-performing A malls.
• Analysis by Fitch expects Nordstrom to see sales decline as much as 20% in 2020—Nordstrom offers “differentiated merchandise and [a] high level of customer service enabling the company to enjoy strong customer loyalty.” Fitch cited far fewer concerns around Nordstrom, compared with Penney and Macy’s.
• Nordstrom shares have tumbled nearly 55% year to date, bringing its market cap to $2.9 billion.

“The longer our stores remain closed to the public, the greater impact it will have on our results of operations and financial condition, and if our physical locations remain closed to customers for an extended period of time our financial situation could become distressed,” the company said in a securities filing earlier this month.

Nordstrom CFO Anne Bramman said in a statement about the retailer’s recent debt offering: “These measures will provide Nordstrom with additional liquidity and flexibility not just for the short-term but over the longer term as we emerge from this unprecedented time.”

The Neiman Marcus Group

• The retailer has an enormous debt burden of about $4.8 billion due in part to a leveraged buyout in 2013 by the owners Ares Management and the Canada Pension Plan Investment Board, who took over the retailer in a $6 billion leveraged buyout that replaced old debt left over from another group of private equity firms in 2005.
• With 43 shops, two dozen discount outlets, and two Bergdorf Goodman stores in New York City, the retailer has expensive rents in high-profile shopping destinations with many of the leases signed during the boom time.
• In late March, Neiman stopped accepting new merchandise and furloughed a large number of its approximately 14,000 employees.
• CEO Geoffroy van Raemdonck waived his salary for April.
• On April 14, S&P downgraded Neiman’s credit rating.
• The retailer did not make an interest payment on a group of bonds that was due on April 15, according to hedge fund Marble Ridge Capital, which owns a significant portion of the $137.7 million in bonds that mature in October 2021.
• Experts feel the core business could be salvageable, underneath its billions of dollars of debt. Over a century old, the retailer is one of the largest sellers of luxury fashion globally, doing nearly $5 billion in sales annually with a third of their revenue coming from online. As of last spring, around 60% of those customers were under the age of 54, and a third have net worth greater than $1 million, according to the company.

Moody’s Vice President Christina Boni said to Retail Dive that Neiman still has a “formidable brand” with a strong offering. “They are integral in that regard to the (luxury) space.”

Macy’s, which also owns Bloomingdale’s and Blue Mercury

• On March 30, with its stores being closed for nearly two weeks, it had lost the majority of its sales, the company said.
• On April 11, according to Reuters, Macy’s hired bankers from Lazard to explore new financing.
• Macy’s is looking at raising as much as $5 billion in debt using its inventory as collateral to raise $3 billion and real estate to raise $1 billion to $2 billion, people familiar with the situation told CNBC, stressing that bankruptcy is not a focus at this time.
• Macy’s has fully drawn its $1.5 billion revolving credit facility.
• The company has extended payment for goods and services to 120 days from 60 days.
• CEO Jeff Gennette is forgoing any compensation for the duration of the crisis.
• As of January, Macy’s had sales of roughly $25 billion and net debt of $3.5 billion. Its nearest debt maturity is for roughly $530 million in January 2021. Its shares have fallen nearly 70% year-to-date, giving it a market capitalization of $1.6 billion.
• The company was dropped from the S&P 500 Index at the end of March based on its valuation.
• Macy’s said it planned to shut 125 stores in weaker shopping malls over the next three years. It has closed more than 100 stores since 2015 and it still operates 551 of its namesake department stores, 34 Bloomingdale’s shops, 19 Bloomingdale’s outlet locations, and 171 Blue Mercury stores.
• The majority of its roughly 130,000 store workers have been furloughed, and the company suspended its quarterly cash dividend, starting in the fiscal second quarter.
• According to WWD the retailer hired Goldman Sachs mid-March, before the COVID-19 shutdown, to shop the asset with private equity firms among the players interested.

A spokesperson for Macy’s said: “As we have previously communicated, the coronavirus pandemic continues to take a toll on Macy’s business. While the digital business remains open, we have lost the majority of our sales due to our store closures.”

“Macy’s has taken multiple actions to improve our position and improve financial flexibility, including suspending our quarterly dividend, deferring capital spend, drawing on our credit facility, reducing pay at most levels of management and furloughing the majority of our colleagues,” she added.

J.C. Penney

• Pre-pandemic, the Texas-based company failed to persuade creditors to restructure some of its nearly $4bn long-term debt pile.
• A $105 million bond repayment is due this June, according to Fitch Ratings, which is also forecasting Penney’s sales to decline more than 25% in 2020.
• The retailer’s market cap has fallen 75% to about $83.8 million this year, with its stock trading at around a quarter.
• The retailer has hired Lazard, the law firm Kirkland & Ellis, and the consultancy AlixPartners to explore restructuring options, according to The New York Times.
• On April 15, the department store chain skipped a $12 million interest payment, entering a 30-day grace period before a potential default is triggered. A skipped payment on a bond, to try to preserve liquidity, is typically a step that precedes a bankruptcy filing.
• A decision on the path forward is expected next week, including the potential of filing for bankruptcy in the coming weeks.
• The retailer has only reported a profit during its holiday quarter. Revenue has declined for eight straight quarters.
• Earlier this month, Chief Executive Jill Soltau, who joined the company from fabric and crafts retailer Jo-Ann Stores in October 2018, had been scheduled to unveil more details of her turnaround plans to analysts, but the meeting has been postponed indefinitely due to the pandemic.
• Penney drew down $1.25 billion from its revolving credit line in March. Beginning March 19, all 850 of its stores closed and the majority of its 85,000 employees have been furloughed.

“J.C. Penney has been engaged in discussions with its lenders since mid-2019 to evaluate options to strengthen its balance sheet and maximize its financial flexibility, a process that has become even more important as our stores have also closed due to the pandemic,” a spokeswoman said in an emailed statement to CNBC.

“We expect a significant store footprint reconfiguration … which may occur through a cleanse and rebirth through Chapter 11,” Joseph Malfitano, founder of turnaround and restructuring firm Malfitano Partners, said about Penney to CNBC.

What Experts Are Saying:

“We’ve just got to figure out a way to be relevant. … We don’t sell things people need, we sell things people want,” Pete Nordstrom, Nordstrom President and Chief Brand Officer, said during a virtual Vogue Global Conference.

“This is a liquidity crisis of enormous consequences,” said Mark Cohen, former Sears Canada CEO and Director of Retail Studies at Columbia University. “The category has been on its way out for years. They are just in different stages of distress. This crisis we are in is going to accelerate the decline of the genre.”

“Borrowers of all shapes and sizes are drawing their revolvers,” said Cathy Leonhardt, Managing Director and Co-head of Consumer Retail at PJ Solomon. “Unlike 2008, there is less resistance from banks in meeting these requests and there is certainly no stigma associated with defensive draws.”

“The best and the brightest are going to survive, and even thrive thereafter,” she added. “But if you are marginal, it will be more difficult to get the requisite capital to survive.”

“Nobody knows what Q4 will be like, but you have to start putting the orders in now,” Sucharita Kodali, a retail analyst at Forrester, said of the holiday season to The New York Times. “Some people don’t even have the money to put in Q4 orders, and may have to cancel Q4 orders anyway, and it’s a mess. There’s never been this much uncertainty.”

“The nature of the mall is if you lose a big anchor like a Macy’s, you have co-tenancy issues and you have more pressure on the mall traffic, which was already a big issue,” Oliver Chen, an analyst at Cowen, said to The New York Times.