Tis The Season For Bankruptcies

As we close out the year, the holiday season will soon be behind us. For retailers, this is the end of their "money season". Many retail stores make upwards to 40% of their entire yearly revenue in the holiday month.

The focus upon this time of year is enormous. If retailers have a rough go of it, then the rest of the year is going to be tough.

Of course, that is in normal circumstances. 2020 was anything but normal and the retail world was in a dire situation before COVID-19.

What took place this year only make things worse.

According to an article on CNN, more than 30 retail companies and restaurant chains already filed for bankruptcy in during the past year. As we cross into the new year, we can expect more to be added to the list.

We saw over 8,000 store locations going under.

Things are equally as bleak in the restaurant industry. From the same article:

Business is equally bleak for the US restaurant industry. About 17% of the country's restaurants — roughly 110,000 — have permanently closed this year, with thousands more on the brink according to a recent National Restaurant Association report.
Business is equally bleak for the US restaurant industry. About 17% of the country's restaurants — roughly 110,000 — have permanently closed this year, with thousands more on the brink according to a recent National Restaurant Association report.

Over the last couple of months, I put together a number of articles detailing how life is difficult for the commercial real estate sector. There are many variables affecting things from the exodus out of urban areas to the work from home shift. However, the retail sector is just accelerating a trend that was in place long before the pandemic.

Online shopping is now eating into roughly 20% of all sales. This is a significant number when you think about it. Even traditional retailers like Walmart are getting into the action. That company is now going head-to-head with Amazon.

The United States already has more retail space per capita than any country in the world. What took place over the last few decades, the building of more retail space, is now coming back to haunt investors. As companies close up shop, landlords are struggling. They have huge mortgages tied to these properties, something that they cannot easily get out of.

Entering the first quarter is a challenge. Those companies that had a poor holiday season will realize the futility of continuing operations. Many were using the last part of 2020 in hopes of some type of resurrection. According to the numbers, it does not look promising.

While online sales continued to do well, those companies that were dependent upon foot traffic suffered a great deal. Those areas that were open saw a big drop in the number of people.

Many locations such as in New York City are suffering from a second lockdown. This will likely take out another large slice of the retail and restaurant business. As chains start to file bankruptcy, the effects start to ripple throughout the economy.

As always, here we see Mainstreet versus Wall Street. The average person is really affected when their jobs are lost due to the closings. Many of these people are living paycheck to paycheck anyway, so any setback is horrific. We can expect unemployment claims to go up as the holiday employment ends.

Overall, it is not a very optimistic situation for those who are watching the retail sector.

For reference, here is a quick list of the bankruptcies in 2020:

Papyrus

Bar Louie

Krystal

Pier 1 Imports

Modell’s Sporting Goods

True Religion

J.Crew Group

Neiman Marcus

JCPenney

Souplantation and Sweet Tomatoes