News Out of the Retail Sector: Layoffs, Store Closures, and Bankruptcy

Traditional brick and mortar retail stores have been among the hardest hit businesses during the current health crisis and economic restrictions. There have been a few traditional stores that have been able to maintain to some degree, but mainly it was companies with a growing online presence before the crisis started—companies like Walmart and Target come to mind. Other retailers that don’t sell essential goods like food are hurting right now and we are only three months into the economic restrictions. Many states are lifting restrictions and allowing businesses to operate with longer hours and such, but that might not be enough to save some retailers.

In the last few days, there has been bad news released from three different retailers and they are in three very different lines of business. Brooks Brothers, one of the most famous brands in menswear, filed for bankruptcy on Wednesday. The company was founded in 1818 and had provided suits to 40 different U.S. Presidents. Now, the company is closing 50 stores around the country and looking for a buyer in order to stay in business. The current pandemic certainly hurt the business as more and more people are working from home, but there has also been a shift going on for a number of years where companies are allowing employees to dress more casually.

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It was also on Wednesday that home goods retailer Bed Bath & Beyond (Nasdaq: BBBY) announced that it would be closing 21% of its namesake stores across the United States and Canada. The planned closures span over the next two years and will include approximately 200 stores. Bed Bath & Beyond was struggling before the pandemic and had planned to close some stores before the crisis hit. Now the company has been forced to expand the closures from 60 stores to 200 stores.

Thursday morning saw Walgreens Boots Alliance (Nasdaq: WBA), the drugstore chain, announce earnings for its fiscal third quarter. The company posted a bigger loss than expected and cited rising costs and fewer doctors’ visits as the reasons for the loss. With the global health crisis, each location has had to spend more on cleaning the stores and in some cases it has had to pay more for staffing the stores. The company also announced that it would be cutting 4,000 jobs at its Boots division in the United Kingdom.

The combination of the news from Brooks Brothers, Bed Bath & Beyond, and Walgreens is not likely to be the last of the bad news out of the retail sector. When you think about when the various shutdowns started in the United States, we have been dealing with the COVID-19 virus for approximately four months now, but the number of cases continues to rise.

The states are all at various points in the process right now with some states seeing improvement in the way of fewer cases while others are seeing spikes. This is also leading to the states being at different levels of reopening plans. This has to be difficult for retailers to keep up with and it is obviously limiting the companies and their ability to go about business.

Even if all restrictions were removed tomorrow or if there was a nationwide plan put in place for how retailers could conduct business, the sales at most retailers would still be below their pre-pandemic levels simply because not everyone would feel comfortable going into a store. Business as usual may not ever return to what it was before this global health crisis, but I don’t see retail revenue numbers returning to pre-pandemic levels anytime in the near future.

The process of getting consumers to return to physical stores is going to be a long and arduous process. Some people that have adapted to online shopping during the crisis will likely continue their new shopping patterns after the crisis is over. For those retailers that require in-person shopping, they might not ever get back to previous sales levels.

From a personal level, I can tell you that my wife and my youngest son haven’t physically stepped into any type of store since March. I have done the grocery shopping and my middle son works in a grocery store and has been working throughout the crisis. My wife was already a pretty good online shopper and now she has found ways to buy even more of the products she needs on the internet. My youngest just got some new shoes, shorts, and shirts in the mail this week.

These types of transactions are easier and safer at this time. How many people will adopt these types of transactions permanently going forward? My wife and I both have never been the type to enjoy shopping, so the process of doing online shopping has been in the works for years. But other people that weren’t using online shopping before could adopt the practice more permanently.

I look for more bad news out of the retail sector in the coming months. There will be additional bankruptcy filings, there will be more store closures, and there will be more job cuts—you can count on it.

About Rick Pendergraft

Rick has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick’s analysis process includes fundamental, sentiment and technical analysis. Rick started college as an education major, wanting to teach economics, but eventually changed to majoring in Economics and received a Bachelor of Science in Economics from Wright State University. His desire to inform and educate people is at the heart of his writing.