The Retail Bankruptcy Wave May Be Subsiding….but Can It Hold?

The tsunami of retail bankruptcies, restructurings and liquidations seen since the onslaught of the COVID-19 pandemic has been of biblical proportions. In the US alone, more than 25 retailers and restaurant chains have filed for bankruptcy or liquidation in 2020, which is more in 7 months of 2020, than the entire 2019 year which also saw an increased level of distress pre-COVID. Retail in general had been under-pressure in recent times, as the onslaught of e-commerce upstarts and behemoths like Amazon (AMZN) drove a distinct change in consumer shopping habits.

Large-format malls, particularly those across 2nd tier locations throughout the US, experienced disastrous downturns in overall foot-traffic. This preceded the eventual closure, or partial mothballing of some of the country’s most well known mall-operating names. As we reported here, Robinhooders Set for a Monday Morning Roasting CBL seemed set to be the first mall-operator to join its tenants in bankruptcy court. This follows the steady decline in foot-traffic which saw many regional malls close prior to the pandemic induced shut-down.

“The whole business model of a mall, which is about pulling in as many people as you can and getting them to stay for as long as you can, has just unraveled,” said Neil Saunders, managing director of consultancy GlobalData Retail. In mid-June, Mr. Saunders’s concerns were compounded, with approximately 2100 individual store closings announced within a week. Although, there may be a slight glimmer of light at the end of the retail tunnel, as governments around the world, led by US President Trump, begin to work furiously towards a full-scale reopening. This is particularly important to the upcoming Republican  campaign, ahead of the November election. Although, in stark contrast, countries such as Australia have begun reinstating more draconian lockdowns as a second wave slams certain states.

The entire future of ‘old school boots on the ground’ retail, and their debt-loaded landlords, hinges on world economies returning to some form of normal, with foot-traffic allowed to return and people actively engaged in employment and subsequent discretionary spending. If the retail landscape is to survive and eventually thrive as it once did, consumer behaviour must be allowed to return, generally unfettered, to its former self. This may be a tough call, because as WHO Chief Tedros Adhanom said recently, there will be “no return to the old normal for the foreseeable future”. This suggests that the only stategy for survival into the future is to diversify, and change with the times.

Assuming that the US can lead with a steady round of opening up, global trade may slowly begin to reignite, although with individual countries and states determining their own courses of action, a concerted reopening and stimulus is unlikely. As everyone is all too aware, the downstream effects of the retail-apocalypse are clear to see. One particularly active participant, directly tied to the continued growth of the retail landscape is Swedish shopfitting giant iTab.  Ex.IKEA executive and recently appointed iTab CEO, Andreas Elgaard, is quietly confident that the group can continue its restructure, and play a key role in the all-important refurbishment and refreshment programs that will replace major retail roll-outs into the future. With a fairly sizeable debt load, carried in the face of plunging revenues, iTab is regarded as a bellwether for the industry. The appointment of Macquarie Capital as an independent financial adviser bodes well, considering the ‘silver donut’s’ reputation for picking winners in the retail space. Read more…

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