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Dec. 28, 2020, 1:25 p.m. EST

Retail bankruptcies in 2020 hit the highest levels in more than a decade, and experts say there are more to come

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Tonya Garcia

There were dozens of retail bankruptcies in 2020, and experts say the pain isn’t over yet.

S&P Global Market Intelligence tallied 49 bankruptcies in the retail space as of mid-November, including Ann Taylor parent Ascena Retail Group Inc. /zigman2/quotes/201535861/composite ASNAQ -4.55% , luxury department store Neiman Marcus, home goods specialists Sur La Table Inc. and Brooks Brothers Group Inc.

That’s the largest number of bankruptcies since 2009, during the financial crisis.

COVID-19 was the straw that broke many ailing retailers. Companies that were already struggling to keep up with trends, invest in necessary digital upgrades and shift to modern customer experiences simply couldn’t cope with the added pressure of store closures, a massive shift to e-commerce, safety protocols and other side effects of the coronavirus.

“The pandemic has accelerated what was going to happen in a number of years in a shorter period of time,” said Mickey Chadha, Moody’s vice president. “The names that have filed for bankruptcy probably were pulled forward.”

Read: U.S. will remain biggest retail market as government stimulus, e-commerce push the nation ahead of China

In addition to stores closing due to bankruptcy and restructuring, many retailers have been using the pandemic period to reconsider their fleet of stores. Gap Inc. /zigman2/quotes/206554267/composite GPS +5.75% and Children’s Place Inc. /zigman2/quotes/201350452/composite PLCE +6.10% are just two of the retailers that have talked of “rightsizing” their store fleets.

Coresight Research counted 8,401 store closures year-to-date in a Dec. 4 report.

With vaccine distribution ramping up and 2021 around the corner, a retail recovery isn’t going to happen like the flip of a switch. Instead, experts and analysts say there are more retail bankruptcies looming before things get better.

“There are still a lot of names that are in distress and weak in retail and apparel,” said Chadha. “The pandemic will accelerate the trends making the weak weaker and the strong stronger.”

Watch: How to pick winners in the retail sector amid the pandemic

On a positive note, the bankruptcy process is intended to give businesses that need it a second chance.

“In a general sense there might be a stigma about a bankruptcy. We view the bankruptcy process as a tool to help companies restructure their business and balance sheets,” said Dan Guyder, partner at international law firm Allen & Overy.

“And it’s a positive for investors to help a company move back to growth. There might be some broken glass along the way, but that’s the cycle of life for some companies.”

In recent weeks, J.C. Penney Co. Inc. , for example, has emerged from bankruptcy and has a number of plans to grow the business, including a new women’s brand and a beauty strategy .

Consumers need to recover as well

It’s not just retailers that have to recover from the coronavirus-induced economic slump. Shoppers do as well. With government protections against foreclosure and eviction expiring and with the additional government stimulus measures still very uncertain, consumers now have to rethink personal budgets and perhaps tighten up spending habits.

This could throw even the best-laid retailer plans into disarray.

And: Americans are draining their checking accounts as stimulus talks drag on

“There’s more pressure on consumers to redirect available cash to meet those obligations,” said Guyder.

/zigman2/quotes/201535861/composite
US : U.S.: OTC
$ 0.11
-0.0050 -4.55%
Volume: 171,672
March 8, 2021 10:26a
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$1.11 million
Rev. per Employee
$106,231
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/zigman2/quotes/206554267/composite
US : U.S.: NYSE
$ 28.88
+1.57 +5.75%
Volume: 11.43M
March 8, 2021 4:03p
P/E Ratio
N/A
Dividend Yield
3.36%
Market Cap
$10.21 billion
Rev. per Employee
N/A
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/zigman2/quotes/201350452/composite
US : U.S.: Nasdaq
$ 80.19
+4.61 +6.10%
Volume: 692,195
March 8, 2021 4:00p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$1.10 billion
Rev. per Employee
$108,131
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