Last year saw a record number of store closures in the United States; 2020 looks like it’s about to get a lot worse.
With the coronavirus pandemic hitting many consumers across America, spurring them to stock up at the grocery store on essentials before they hole up at home to wait things out, many companies already struggling to keep their lights on could be forced to turn them off, for good.
Retail store closures this year are now on pace to be “double what we saw last year,” which was a record year, said Deborah Weinswig, CEO and founder of retail advisory and research firm Coresight Research. “I think that is already in motion. … If [COVID-19] stays longer, it will be greater.”
Last year, U.S. retailers ranging from Sears to Barneys New York to Charlotte Russe announced plans to shut more than 9,300 locations, up more than 50% from 2018, according to Coresight’s tracking. Previously, the record was for the 8,069 store closures announced in 2017.
There could be more than 15,000 store closures announced by retailers in 2020 due, in large part, to the coronavirus, Weinswig said.
“I think we will see an increase in the number of Chapter 7 [bankruptcy filings],” she added. “Nobody knows how to deal with this.”
When a company files under Chapter 11 of the bankruptcy code, it seeks to reorganize its business and continue to operate. However, under Chapter 7, companies liquidate their assets.
While Italy and France have opted to shut nonessential retail stores indefinitely to try to curb the spread of the virus, the U.S. has not yet reached that point. Many retailers are still open for business.
A slew of companies have taken their own measures to close their doors for the foreseeable future. So far, that list includes Nike, Patagonia, Apple, Urban Outfitters and Abercrombie & Fitch. Walmart over the weekend said it would be reducing store hours across the country. Gap Inc. has also reduced store hours and is temporarily closing more than 100 locations.
Many of these companies said they would continue to pay their workers during the closures.
For companies more reliant on in-store sales to pay their bills and cover rent, the decision to shutter a store for a few weeks, hoping the spread of the virus eases, is not so easy. Store closures will likely mount for those retailers already on the brink of going out of business. The apparel sector is expected to be hit especially hard. Most consumers currently are not thinking about buying a new outfit, handbag or pair of shoes.
“You’ve got to think the mall merchants are really going to hurt through this,” said Sucharita Kodali, a retail analyst at Forrester Research.
The American Dream megamall in New Jersey has shut at least through the end of March and thus has delayed the opening of the retail portion of the property, which was set to take place Thursday.
Simon Property Group’s King of Prussia mall in Pennsylvania has told all of its nonessential retail tenants to close, based on a recommendation by Gov.Tom Wolf, according to a memo reviewed by CNBC. As of Saturday afternoon, only a Rite Aid was open, one tenant told CNBC.
Simon did not immediately respond to CNBC’s request for comment.
Other mall owners are expected to follow suit.
“Most of the [mall owners] up until Friday … were sort of in reactionary mode, waiting to see instruction from local government,” said Vibhu Norby, founder and CEO of B8ta, which has nearly two dozen stores in various malls and shopping centers across the U.S. “It is not in their nature to be proactive about these things.”
“I don’t think most people understand,” he said. “The consequences of this are not minimal. This is going to be the death of a lot of companies.”