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Episode 5: Retail in the Red: 2020 1H Bankruptcy Filings (Part 1)




Announcer: Welcome to this episode of “60-second Retail” - a BDO podcast keeping you in-the-know on events and trends in retail and consumer products industry impacting your bottom line, in just a few short minutes.

Natalie: Hello, my name is Natalie Kotlyar, I am the National Leader for the Retail and Consumer Products industry group at BDO USA.  In this special episode, we are speaking with David Berliner, Partner and National Leader of the Restructuring group at BDO USA, and author of BDO’s bi-annual Retail in the Red report.  We’re going to cover the record-breaking number of 2020’s 1H retail bankruptcies.

The pace of retail bankruptcy filings in 2020 through mid-August is on pace to set a record this year. What type of retailers are the bankruptcy filings concentrated around?

David:  Well first, let’s put in perspective.  In 2019 there were 25 retail bankruptcy filings, which was up 11% over 2018, and as of October 1 of this year retail filings are already 32% higher than in all of 2019.

The filings have been concentrated in apparel and footwear, department stores and home furnishings. Apparel retailers alone represent about 48% of all the 2020 retail filings so far.
 
Natalie:  That is just incredible.  And what has been the general outcome or the plan for these bankruptcy filings?

David:  In retail bankruptcy filings there are generally three outcomes, a liquidation, a sell off of all or some of the assets, or reorganization or restructuring of the business.  So far this year, each of these three outcomes is accounted for about 1/3 of filings.

On the liquidation side there's been some notable retailers, including Pier One, Stage Store, Century 21, and Stein Mart.

On the asset sale front, there's Brooks Brothers and Lucky Brands.

And on the seeking reorganization side, there's been several retailers that have moved down this path, including Neiman and J. Crew tailored brands. The majority of these restructuring cases were filed with what's called a restructuring support agreement and plans to reorganize.  There’s been a couple, including JCPenney and GNC, they filed with an intent to reorganize but they are simultaneously seeking a sale.
 
Natalie: So, having this record-breaking year for bankruptcies, what do you think the outlook for the remainder of the year is going to look like?

David: I think it really depends on the current economic trends and uncertainty, that's going to play a major role in the retail industry recovery.

We have a lot of unemployment right now - some workers are working limited hours, there's a fear of losing their job – all of this is likely to limit discretionary spending.

The unknown timing of the COVID vaccine is going to play a major part in this.

In the holiday season itself, we expect this is going to be more drawn out this year, with a greater emphasis on E-Commerce, which is going to require excellent fulfillment capability, and last mile delivery capability.

Consumers are going to demand more contactless shopping options with curbside pickup, self-checkout, reimagined fitting rooms, etc.

So, all that I think is going to play into the success and how the outlook is going to look for this year.
 
Natalie: Thank you. Thank you very much David and we look forward to continuing this discussion in our next episode of Retail in the Red, where we will focus on store closures.
 
Announcer: And that concludes this episode of BDO’s “60-second Retail” podcast.  Don’t forget to tune in for the next episode!  To find more information on our hosts, guests, BDO’s services, or listen to previous episodes of “60-second Retail”, please visit www.bdo.com/60-second-retail.
 

 
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