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Item Description – The coronavirus has shut down most non-essential businesses around the country. As we near the month of May, some states are relaxing restrictions and allowing more companies to reopen. The controversial decisions are not easy to make. While many argue that alleviating the nation’s economic suffering should be the primary goal, others still push for continued social distancing to better contain the spread of COVID-19.Whether more businesses end up opening over the next month or not, one thing is certain: a wave of bankruptcies is going to hit the retail industry hard in America.Michael McGrail is the COO of Tiger Capital Group, one of the largest asset disposition and valuation firms in the world. He expects the summer to include many going out of business sales at well-known chain stores.“Some companies are just not going to survive this,” predicts McGrail. His team is responsible for putting up the “everything must go” signs and trying to sell retail fixtures and inventory for the highest amount they can.While McGrail won’t provide a list of retailers who have requested his services, he does note that the names on the list aren’t surprising.McGrail and others like him in the bankruptcy and restructuring fields are hard at work these days. Experts agree that an influx of retail bankruptcies is coming to Wall Street in the wake of the coronavirus pandemic.Retailers who once held strong positions in the industry will likely disappear or return with 75% smaller store networks. Those that manage to dodge bankruptcy through creative debt raise or restructuring will be fighting an uphill battle in the coming months.Where Are the Retail Bankruptcy Filings Now?If this big wave of bankruptcies is coming, why aren’t we already seeing retailers filing? One of the reasons is because the bankruptcy process usually takes two to three weeks. Retailers who experienced losses after social distancing mandates hit their areas shut down in mid to late-March. Many tried to remain optimistic about reopening in April, which encouraged them to push off bankruptcy proceedings. Another reason has to do with resources. Even retailers who were in the worst position to weather the storm had enough cash to continue operations through April and May. Furloughed workers made it easier to keep it going. Executives were given more time to consider their options before taking the plunge into bankruptcy filing.Lastly, retailers want to try and raise money to pay as many creditors as they can. This is usually done by holding store closing sales. It is impossible to have an in-person sale when the public is largely shut down and not permitted to shop.“You can’t do that now. You can’t do that with everyone homebound and you can’t make it to the store. So, there is no benefit to bankruptcy,” explains David Berliner, who is the leader of restructuring and turnaround services for Binder Dijker Otte (BDO).Even with labor costs reduced, retailers must cover interest, rent, and other expenses while having no idea when stores can reopen safely. Many understand that this is the time to prepare for bankruptcy if they hope to continue as a business in the future.The increased filings are expected to start to show up in late May and early July. The threat of this dramatic change will also put pressure on stock prices until it becomes clear which companies will survive and which will shutter their stores.Stifel managing director Michael Kollender believes that many businesses will file for bankruptcy. Kollender and his colleagues have worked on many consumer retail bankruptcy cases, including Gymboree, Aeropostale, and Things Remembered.“I think many of these companies will file [for bankruptcy], and it’s not a handful. It’s several dozen. And that’s a scary number. It’s far more than we have seen over the last several years combined.”The retail world could look very different in the United States than it did pre-coronavirus. “We will see some major chains go away and not come back. These are chains that were struggling before the situation. COVID-19 will put them over the ledge,” Kollender stated. James Doak with the banking firm Miller Buckfire has worked with Kollender as part of Stifel’s restructuring team. While it’s undeniable that some retailers will be lost, Doak thinks that some may find ways to struggle out of the financial quagmire using creative deals. For example, some mall owners may take a stake in their anchor tenants to permit them to stay.This isn’t a new concept. A precedent was set back in 2016 when mall owners with General Growth Partners and Simon Property Group won the auction for Aeropostale’s assets. Both groups wanted to keep the retailer open because it had been a strong driver for consumer traffic over the years.As Doak predicts, these creative lifelines are starting to appear. J.C. Penney skipped an interest payment in April and is exploring bankruptcy filing and other options. According to Bloomberg, the retailer received a $300 million financing offer, however, they declined to comment further at this time.Instinet retail analyst Michael Baker refers to J.C. Penney as a higher profile name that most would think is closest to filing for bankruptcy. He also says that “There are big questions about Neiman Marcus and regional department stores like Belk.”Reuters published an article on April 19th stating that Neiman Marcus plans to file for bankruptcy within the next week.A Yahoo! Finance source claims that Lord & Taylor is likely to close down permanently as a result of the COVID-19 changes.Macy’s department store is also searching for ways to raise funds with the help of investment bank Lazard LTD.A spokesperson for Macy’s told Yahoo! Finance that their digital business remains open but that they have lost most of their sales due to brick and mortar store closings. “Macy’s Inc. has taken multiple actions to improve our position and improve financial flexibility, including suspending our quarterly dividend, deferring capital spend, drawing on our credit facility, reducing pay at most levels of management, and furloughing the majority of our colleagues. The company is also exploring numerous options to strengthen our capital structure. We have relationships with a range of advisors.” Reopening the Retail Sector After COVID-19A smooth reopening of the industry isn’t likely, according to experts. There will be chaos over the next few weeks as stores figure out what to do.Thousands of retailers around the U.S. now have badly aged inventory stashed inside closed shops that will have to be sold at a lower price. With everyone doing the same thing to survive, May and June may yield terrible returns on their inventory investments. This will translate to a high number of inventory write-downs and chains being unable to borrow as much against their asset bases.Store liquidations will push prices lower and put pressure on the stronger chains to get their operations up and running again. Even those who were strong before will be less so now. Vendors will be less enthusiastic about shipping product and may tighten payment terms, which can further harm the industry as it fights to regain its footing.Then there is the human side of reopening retail. Consumers may view certain situations with uncertainty. Social distancing may leave people feeling reluctant to step foot in a previously crowded mall. It could mean a slow start to consumer spending.As we try to cope with the health ramifications of COVID-19, our country will reel from the economic impact the pandemic will have through the rest of this year and into the next.Business owners and individuals who feel like they are out of financial options during the coronavirus pandemic can find a bankruptcy lawyer in their area as most offer free consultations.

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