Retailers were struggling. Then came the coronavirus
Thousands of American stores and malls were facing intense pressure. Then a pandemic hit, crippling the economy in much of the country and forcing shoppers to stay home.
A wave of brands, including Macy’s, Nordstrom, Nike, Urban Outfitters, Abercrombie & Fitch, H&M and Victoria’s Secret have announced in recent days that they will shut stores temporarily as the coronavirus outbreak spreads. Others, such as Kohl’s, JCPenney and Gap are reducing store hours, but industry analysts expect they may soon follow their rivals as the coronavirus ripples across the country.
Many of these chains have been grappling with a series of powerful forces chipping away at their businesses — Amazon and big-box retailers like Walmart, Costco and Target, which are currently seeing a crush of demand; trendy upstart brands online; and discount players such as TJ Maxx.
Last year, more than 9,300 stores closed their doors, a 59% jump from the previous year. The retail sector lost upward of 75,000 jobs in 2019.
Now, the industry is contending with the coronavirus and a likely recession that will sap consumer confidence. Foot traffic to US retail stores decreased 30.7% for the week ending on Friday compared with last year, according to the most recent data from Cowen.
“A challenging environment just got even more so,” said BMO Capital Markets analyst Jeremy Metz. “Many retailers are already stressed and hanging on by a thread.”
Although stores are closed temporarily and retailers have pledged to pay their workers in the coming weeks, companies may wind up shutting storefronts for good and laying off employees if the pandemic extends for months.
Deborah Weinswig, chief executive of retail research firm Coresight Research, expects to see more than 15,000 stores go out of business this year.
Brick-and-mortar clothing and department stores face the toughest challenges, analysts say.
“Mall-based businesses are most at risk, especially those that have no momentum” like Victoria’s Secret or companies that “sell products that don’t translate well online like candles,” Jefferies analyst Randal Konik said in a research note Monday.
Department stores have been shrinking for years and former leaders of the sector like Sears and Bon-Ton have filed for bankruptcy.
“Department stores are extremely vulnerable in this environment,” Ken Perkins, president of research firm Retail Metrics, wrote in a note to clients Tuesday. “The group has been struggling for years to find a winning formula and stem the loss of market share to Amazon, TJX, Ross Stores, and others.”
Malls also face heightened risks. Store closings and bankruptcies in retail have led to vacant storefronts and so-called zombie malls around the country. Credit Suisse has predicted that one in four malls will close by 2022.
“The going thinking was already that a few hundred malls would die or go away,” said Metz from BMO Capital Markets. Coronavirus may accelerate that process and put a damper on even healthier malls.
