Signage is displayed outside a JC Penney Co. store in Chicago, Illinois.
Signage is displayed outside a JC Penney Co. store in Chicago, Illinois.
Christopher Dilts | Bloomberg | Getty Images
  • Through mid-October, there had been 46 retail bankruptcies in 2020, according to a tracking by S&P Global.
  • More retailers are expected to file for bankruptcy after the holiday season.
  • Bankruptcy doesn’t always mean the end.
  • Retailers including J.Crew and Neiman Marcus have already emerged from bankruptcy court, having filed for Chapter 11 in 2020.

For the dozens of American retailers that have filed for bankruptcy in 2020, it doesn’t always mean the end is near.

Bankruptcies have piled up in the retail industry this year, as many of the consumer-facing companies that were already teetering on the edge of survival prior to the coronavirus pandemic were pushed into even bigger sales slumps, and could not manage through the crisis. And analysts say another wave of filings likely lies ahead, after the holiday season, with the size of that wave dependent upon retailers’ performance through the winter months.

A common misconception among consumers — when they see their favorite brands are headed to bankruptcy court — is that those companies are going away for good. (Yes, sometimes tears are shed.)

But a number of the retailers that have filed for Chapter 11 bankruptcy protection this year have already emerged, in some form or fashion. Typically, that is with fewer bricks-and-mortar stores, as many companies will use the restructuring process to break leases without penalty to slim down their real-estate portfolios.

As those stores close up, mall and shopping center owners are then under pressure to find new tenants. The retail real estate industry has also been grappling with the effects of the pandemic: Fewer rent checks coming in each month, and thousands of store closures when less companies are looking to open new locations. Mall owners CBL & Associates and Pennsylvania REIT both filed for bankruptcy protection on Sunday, highlighting these stresses.

A Chapter 11 filing is, simply put, a way for troubled companies to slash unprofitable assets and burdensome debt, while their management team remains in control of the business. And a bankruptcy court oversees the negotiating process with landlords, creditors, vendors and other involved parties.

A Chapter 7 filing, in comparison, entails a total liquidation.

Retailers file, then emerge

The preppy apparel brand J.Crew marked the first major retailer to file for Chapter 11 during the pandemic, in early May. Its problems predated the Covid-19 crisis, as its debts mounted and sales were in a slump. But pressures ballooned when its stores were forced to shut in March, to try to help curb the spread of the virus, and many consumers culled their spending on clothing.

In September, though, J.Crew emerged from bankruptcy court — this time with new owners. Its restructuring plan swapped $1.6 billion of old, secured debt for new ownership, under Anchorage Capital Group, and also provided a fresh $400 million credit facility.

“J.Crew and Madewell’s ability to pair timeless classics with modern, fresh designs will never go out of style, and we intend to continue the legacies of these two iconic American brands with deeply loyal customers and strong, creative leadership teams,” the Anchorage Capital CEO said in a statement.
The high-end department store chain Neiman Marcus emerged from bankruptcy in late September, too, after filing for Chapter 11 in May, shortly after J.Crew. Its restructuring plan eliminated more than $4 billion of debt, along with $200 million of annual interest expense.

“While the unprecedented business disruption caused by Covid-19 has presented many challenges, it has also given us the opportunity to reimagine our platform and improve our business,” Neiman Marcus Group CEO Geoffroy van Raemdonck said in a statement. “We emerge from Chapter 11 as a stronger, more innovative retailer, brand partner, and employer.”

The home-goods chain Pier 1 Imports has somewhat of a unique story: It had filed for Chapter 11 in February, and at the time planned to close roughly half of its locations, or about 450 shops. But when it didn’t find a buyer for the remainder of its business during the pandemic, it started liquidating in May.

This past July, however, a company known as Retail Ecommerce Ventures paid $31 million for Pier 1′s trademark name, intellectual property, data and various online-related assets. Pier 1′s website has since re-launched, just ahead of the holiday season.

REV is known for saving a number of other troubled companies: It owns the brand assets and e-commerce businesses of Linens ’n Things, Modell’s Sporting Goods and Ascena Retail Group’s Dressbarn banner, to name a few.

“Clearly, there is the appetite to save,” said David Berliner, chief of BDO’s business restructuring and turnaround practice. “The strategy is to get as much sales [from these brands] as you can.”

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