Retail bankruptcies won't happen until after stores reopen

[disneysteve]

I was just reading an article explaining that while there will most likely be a number of retailers that file for bankruptcy at least in part due to the COVID losses, we won't really see them until after everything reopens. I thought the reason for that was pretty interesting. Apparently, companies that file depend on store closing sales to pay the debtor-in-possession loans that they get to allow them to keep operating during reorganization. With the stores currently closed, they can't engage in that process. And they only have 180 days after filing before the creditors can ask the court to start the liquidation process.

So although J. Crew filed today, we probably won't see a flood of others until after everything is up and running again because of this.

ETA: Here is the link to the article: https://www.cnn.com/2020/05/04/busin...tcy/index.html

[Drake3287]

I totally agree and unfortunately it won't simply be larger retailers. This entire virus/SIP situation has many ripple affects out there that we haven't even begun to see. Remember back in the rescission when so many stores sat empty for years, this will be much worse down the road, we just haven't seen it yet. Another interesting ripple affect will be the second/vacation home market out there and the future of people having to unload them, not unlike during the rescission.

I feel guilty even saying it but I've been watching vacation property prices ever since I retired a few years ago but haven't had the nerve to pull the trigger on a Lake Tahoe area vacation home. If the real estate market goes the way it did 10 years ago I'll certainly be on the sidelines waiting.

[Scallywag]

companies that file depend on store closing sales to pay the debtor-in-possession loans that they get to allow them to keep operating during reorganization.

Sorry, I don't understand this at all. Can you explain, please? If you sell all your inventory wouldn't you have to pay to replenish stock to continue operating? Or do you mean closing only some stores & using proceeda to pay off creditors while running other stores? Wnat am I missing here?

[disneysteve]

Sorry, I don't understand this at all. Can you explain, please? If you sell all your inventory wouldn't you have to pay to replenish stock to continue operating? Or do you mean closing only some stores & using proceeda to pay off creditors while running other stores? Wnat am I missing here?

Yes, typically when a large retailer (think Macy's or JCPenney) files for bankruptcy protection, they will enter into a reorganization period that often includes closing underperforming stores and downsizing their operation in an effort to regain viability moving forward. They get loans to help support them during that time and proceeds from the store closing sales go toward repaying those loans.

If you can't have the store closing sales, the lenders don't want to make those loans because you'd have no way to repay them.

[Scallywag]

Yes, typically when a large retailer (think Macy's or JCPenney) files for bankruptcy protection, they will enter into a reorganization period that often includes closing underperforming stores and downsizing their operation in an effort to regain viability moving forward. They get loans to help support them during that time and proceeds from the store closing sales go toward repaying those loans.

If you can't have the store closing sales, the lenders don't want to make those loans because you'd have no way to repay them.

Got it, thanks!

[bjl584]

Yes, typically when a large retailer (think Macy's or JCPenney) files for bankruptcy protection, they will enter into a reorganization period that often includes closing underperforming stores and downsizing their operation in an effort to regain viability moving forward. They get loans to help support them during that time and proceeds from the store closing sales go toward repaying those loans.

If you can't have the store closing sales, the lenders don't want to make those loans because you'd have no way to repay them.

Businesses with an online presence have an advantage then.
So, I can see where the smaller businesses will have to wait.
Mom and Pop stores probably won't go through this process at all. They will just simply disappear

[Snydley]

Interesting, I didn't know this.

[disneysteve]

I updated the original post with the link to the article.