Just days after reports detailed how Neiman Marcus is on the brink of filing for Chapter 11 bankruptcy protection, fellow upscale department store chain Lord & Taylor is said to be “exploring” its own bankruptcy-related options. The New York City-headquartered retailer is reportedly eyeing a potential bankruptcy filing in light of a difficult retail climate, which has only been escalated by social distancing guidelines and mandated closures across the U.S., including of its own 38 outposts, as tied to the enduring Coronavirus outbreak.
According to a report from Reuters, bankruptcy “is one of several options that Lord & Taylor and its advisers are exploring, which also include trying to negotiate relief from creditors and finding additional financing,” although “no final decisions have been made” yet. A representative for the storied retail chain, which was founded in 1826 and sold to fashion rental service start-up Le Tote last year (by former owner Hudson’s Bay Company for $70.4 million), has not commented. However, a rep for the barely 8-year old Le Tote told Reuters that “Lord & Taylor is working through various options.”
The reports of potential filings by both Neiman Marcus and Lord & Taylor come as consumers’ retail spending has plummeted over the past several weeks, which only serves to intensify the problems already faced by department stores that have not fared well in recent years, as they have struggled to get a handle on their longstanding practice of discounting and to keep up with consumers, who have continued to place increasing reliance on e-commerce, particularly over shopping malls.
Against that background and given the heightened threat of COVID-19 in the U.S., retail sales dropped by 8.7 percent for the month of March, according to the U.S. Census Bureau, “the largest-ever decrease on record, nearly triple the previous worst month on record in 2008,” per Fast Co. As for clothing and accessory sales, in particular, those were down by a whopping dropping 50.5 percent for the month.
While clothing and accessories brands and retailers are struggling across the board, “digitally native ones, which have always relied on the internet to engage customers, are weathering the storm better than brands that still relied heavily on customers coming into stores,” Jordan Elkind, VP of product marketing at Amperity, a firm that analyzes brands’ consumer data, told Fast Co. The likes of Neiman Marcus and Lord & Taylor fall neatly within the latter camp, although, they do maintain e-commerce operations, but largely as a supplement their primary brick-and-mortar outposts, where aging, seasonal inventory is piling up, and further exacerbating the problems they face.
“Clothing retailers are sitting on tens of billions of dollars of unsold merchandise, and the usual methods for clearing it out aren’t working while the coronavirus keeps most U.S. stores closed,” the Wall Street Journal reported this week, noting that while retailers, including Neiman Marcus and Lord & Taylor, are “discounting heavily on their websites, consumers still aren’t spending on apparel and footwear.” While “some companies are packing away goods with the intent of selling them next year, a process known as hoteling,” this is not a perfect solution as the process of handling and storing these wares “can be costly and doesn’t work for fashion items that go out of style.”
As for the American retail market as a whole, the enduring impact of the Coronavirus, which has caused retailers across the country to close nearly all (if not all) of their consumer-facing outposts, is likely to cause a flood of bankruptcy filing, according to analysts, who expect “a strong uptick in bankruptcies” beginning around “the time of store re-openings in late May and early June.”
“I think many of these companies will file [for bankruptcy], and it’s not a handful. It’s several dozen,” according to Michael Kollender, the managing director of Stifel’s consumer and retail investment banking group, which has worked on dozens of consumer and retail bankruptcies in recent years, including Aeropostale and Gymboree. Putting that number in context, Kollender says it is “scary” and “far more than we have seen over the last several years combined.”