Retail Stores Distressed: Only The Strong Survives

Retail Stores Distressed: Only The Strong Survives – We all have ordered from Amazon AMZN during the current, stressful COVID-19 pandemic period. The company’s assortment is broad and persuasive, assuring us that we can find just the right thing we want. We cannot shop at our traditional stores, yet we often find what we were looking for there on Amazon.

The traditional brick-and-mortar stores, meanwhile, have struggled to stay alive by offering some merchandise through their e-commerce sites. But as the pandemic stretches out, that effort has been sputtering.

A survey of nearly 100 digital retailers surveyed by CommerceNext, an e-commerce marketing and consulting firm, found that 64.5% of businesses reported that e-commerce activity was down during this crisis. So while we are seeing a surge in online shopping, it is most often captured by Amazon along with a few others.

Amazon has hired 175,000 new workers since March to keep up with the surge of orders. Walmart WMT has also added 200,000 new workers to keep up with demand. Target TGT gave out special bonuses to its front-line workers and raised their pay.

But Amazon is the big winner and will benefit substantially from the collapse in retailing. The company’s site has become the quick, go-to solution for customers to find essential goods. And Prime membership offers delivery that is free and fast. It assures customer loyalty.

The key question is what will happen to the department store chains that are still operating. The reality, according to the New York Times, is that department chain stores have a limited time until their financial reserves run out.

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The fact is that both Macy’s M and J.C. Penney have hired financial advisors, Neiman Marcus is negotiating bankruptcy terms and has stopped all orders, and even Nordstrom JWN is facing a “distressed” situation should the coronavirus pandemic continue.

Department stores account for about 30% of the square footage in malls throughout the United States. Green Street Advisors estimated that Sears and J.C. Penney account for about 10% of that square footage. Some 50% of that square footage is expected to close in the next five years.

Things have only gotten worse.

The high debt carried by many of these legacy stores, combined with the fact that today more consumers are shopping at Amazon, Walmart and Target, makes it likely that many of the department store companies will not reopen, or reopen only in some key locations. It will be survival of the fittest.

Who do I think are the strongest? Nordstrom, in my opinion, is the strongest retailer and most likely to survive the national shutdown. Dillard’s DDS, with many stores still open, will also have the strength to survive. After that, things don’t look so good. Neiman Marcus Group is likely to close its doors unless a white knight rescues it at the last moment.

I am sure they are just waiting for the national closure to be lifted. Lord & Taylor dismissed its whole executive team, including the CEO.

Macy’s, despite its valuable real estate assets, is currently seeking a $58 billion relief loan while J.C. Penney did not pay the interest on an existing loan due on April 15 and has 30 days to resolve its financial woes or seek bankruptcy protection.

While I hoped for a solution, every day reduces my optimism, and I now believe management may seek that protection under the law.

We are seeing the death of the major anchor stores of malls. Department stores used to be the destination for many customers when they went on a shopping spree. Now, we will live differently and obtain our basic merchandise and food by e-commerce.

Retailing will benefit from Amazon’s technical know-how, and as consumers, we will be feeling the effect of a retail giant.

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