Distressed retailers are at risk of failure or severe injury due to the COVID-19 pandemic. Retail panel counsel law firms in the insurance defense sector will want to accelerate their business development to mitigate revenue risk associated with the coronavirus threat.
Listed below are a few of the leading national retailers that are in the news as a result of COVID-19 store closures and employee furloughs. Many of these retailers were already in trouble pre-COVID after losing sales to online competitors in recent years.
J.C. Penney is on a path toward potential bankruptcy, with the retailer reportedly seeking up to $1 billion in debtor-in-possession bankruptcy funding according to the Wall Street Journal.
Macy’s, with more than 100,000 mostly furloughed employees and 120 million square feet of COVID-shuttered retail space, is seeking up to $5 billion in debt financing according to Reuters.
Neiman Marcus is preparing to seek bankruptcy protection, which would make it the first major retailer to succumb to the COVID-19 pandemic.
Nordstrom, Inc. announced efforts to strengthen its financial position on April 16, 2020. This included amending an $800 million line of credit and debt financing of $600 million. The retailer operates 379 stores in 40 states, including 116 full-line stores in the U.S., Canada and Puerto Rico; 247 Nordstrom Rack stores; and several other locations.
Kohls announced on March 30 that it will extend the duration of its temporary store closures until further notice. Due to the significant impact to the business, Kohl’s is taking additional actions to strengthen its financial flexibility, including fully drawing down its $1 billion revolving credit facility. The retailer operates more than 1,100 stores across 49 states and has annual sales of $19 billion.
According to an MSN report issued on April 1, 2020, the retailers listed below are included on a list titled “10 Retailers on the 2020 Death Watch.”
Ascena Retail Group, Inc. is a national specialty retailer offering apparel, shoes, and accessories for women under the Premium Fashion segment (Ann Taylor, LOFT, and Lou & Grey), Plus Fashion segment (Lane Bryant, Catherines and Cacique) and for tween girls under the Kids Fashion segment (Justice). Ascena Retail Group, Inc. through its retail brands operates ecommerce websites and approximately 2,800 stores throughout the United States, Canada, and Puerto Rico. In a March 30 news release filed with the SEC, Ascena reported a furlough program across its business, including all store associates and close to half of its corporate associates.
Stein Mart and Kingswood Capital Management recently terminated plans for a merger between the two companies as a result of uncertainty associated with the coronavirus. The plan was that Stein Mart would be taken private for $0.90 per share. All stores are closed with no current reopening data, although sales are being made online. Stein Mart is implementing significant actions to mitigate the ongoing impact of COVID-19 on its cash flow. The company had 283 stores at the end of 2019.
The Container Store, a home-organization retailer, recently drew down $50 million under its revolving credit facility. The retailer now has an outstanding balance of $78 million under the line of credit, with a maturity date of August 18, 2022. Total debt is about $300 million. As of December 28, 2019, the retailer operated 93 stores in 33 states and the District of Columbia.
GNC Holdings, Inc., a retailer of nutritional supplements, expects results to be significantly impacted with potential continuing, adverse impacts into 2020. As a precautionary measure, GNC recently borrowed $30 million under a revolving credit facility, resulting in over $130 million in cash as of March 24, 2020. The news was reported in the GNC 2019 10-K filed with the SEC on March 25, 2020. Most importantly, GNC states that its ability to continue as a going concern is substantially dependent upon its ability to refinance or restructure its debt load. As of December 31, 2019, GNC had approximately 12,400 employees, including approximately 4,400 full-time and 8,000 part-time employees. On the same date, the company reported 2,727 U.S. company-owned stores and 956 domestic franchises.
J.Jill Inc., a retailer of women’s clothing with 280 stores nationwide, furloughed the majority of store associates on April 1, 2020 and is planning layoffs if a call-back date has not been set by May 30. Store, Area and District Managers will be placed on furlough status on May 3, according to an 8-K filed with the SEC on April 15. The struggling retailer borrowed $33 million in late March, which is nearing the limit on its credit line.
Tailored Brands, the seller of men’s suits through the Men’s Wearhouse and Jos. A. Bank chains, has been struggling for years. The coronavirus pandemic will certainly dampen future suit sales as male attorneys and other professionals who otherwise might wear suits are now working from home in shorts and jeans. Two board members resigned from the California-based retailer in early April, according to an SEC 8-K filing.
Stage Stores is a leading retailer of moderately priced, name-brand apparel, accessories, cosmetics, footwear and home goods. As of December 30, 2019, Stage Stores operated in 42 states through 611 Bealls, Goody’s, Palais Royal, Peebles, and Stage specialty department stores and 158 Gordmans off-price stores, as well as an e-commerce website. The retailer’s specialty department stores are predominantly located in small towns and rural communities.
Express, Inc. is a leading fashion brand for women and men. The company, founded in 1980, operates more than 600 retail and factory outlet stores in the U.S. and Puerto Rico, as well as an online sales portal.
Francesca’s Holdings Corporation is a specialty retailer of apparel, jewelry, accessories and gifts with a national chain of approximately 708 boutiques in 47 states throughout the U.S. and the District of Columbia.
Fitch Issues Warning on Retail Sector
Ratings service Fitch expects “the impact on revenues for the consumer discretionary sector from the coronavirus pandemic to be unprecedented as mandated or proactive temporary closures of retail stores in “non-essential” categories severely depresses sales.”
Implications for Retail Panel Counsel Law Firms
This is a challenging time for retail panel counsel law firms. Opportunities to develop additional clients in the retail sector are limited in the short run.
- Retail panel counsel members can assist retailers in coping with potential employment practices liability matters as employees are furloughed or laid off.
- Business interruption insurance coverage is already emerging as an area for more insurance claims.
- As stores reopen, retailers may be exposed to negligence claims alleging that the premises are being inadequately protected from the coronavirus.
Retail panel counsel members can stay close to retailers and offer flexible, responsive arrangements. At the same time, law firms can aggressively expand marketing efforts to attract new clients.
Read our related article on The Future of Business Development Post-COVID.
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Disclaimer
This article is provided for educational purposes only. It is not to be interpreted as legal advice or an opinion regarding any topic discussed. The article should not be used as a substitute for legal advice from a licensed attorney in your state. Every situation is different and circumstances vary depending on the governing state law.
