Like an unwelcome guest, the coronavirus pandemic is hanging around and in no hurry to leave.
Overseas, Hong Kong and Spain are seeing a resurgence in their confirmed coronavirus infections, while in the U.S. reported COVID-19 cases have soared past 4 million with no sign of slowing down. As Hong Kong leader Carrie Lam grapples with a third wave of the virus, the U.S. is still grappling with its first wave even as the specter of a flu-season second wave looms.
Compounding the uncertainty, new Centers for Disease Control and Prevention (CDC) guidance Friday calls schools to reopening on the basis that the “best available evidence” shows children who become infected are “far less likely to suffer severe symptoms.” The CDC also provided tools and checklists for parents and mitigation measures for schools on how and when to reopen. There’s still much debate over whether schools should open, to what extent and how, and what portion of the upcoming school year might be split between the classroom and online classes.
As parents are dealing with decisions for the upcoming school year, many also have been furloughed from work and now run the risk that their employers may make those job cuts permanent. In fact, some companies have done just that. Thursday’s Department of Labor report for the week ended July 18 showed 1.4 million Americans filing for first-time jobless claims. While the number filing for unemployment benefits in recent weeks has held steady in the 1.3 million range, compared with a peak of 6.9 million during the last week of March, Thursday’s report represented the first increase in filings for initial claims in 16 weeks. There are currently 31.8 million Americans collecting unemployment benefits for the week ending July 4, versus just 1.7 million for the same comparable week in 2019, the DOL said.
In the retail sector alone over the past two weeks, bankrupt J. C. Penney shed 1,000 jobs and the bankruptcy of Ann Taylor’s parent company Ascena Retail Group will cut 1,600 stores and inevitably slash headcount. Ascena on Friday received court approval to access over $430 million in cash collateral for use in its day-to-day operations. It is still awaiting the court’s nod to access $150 million in a new term loan from the company’s existing lenders to help fund its bankruptcy case. But it isn’t just the bankrupt firms that will have to make cuts to right size their operations to exit Chapter 11. Many retailers will be faced with tough decisions on four-wall profitably and decide whether a store is worth keeping open. And if state and local governments, order new localized lockdowns. more retail store closures and job cuts are ahead.
As for bankruptcies, struggling women’s specialty apparel chain J. Jill Inc. on Thursday said it received approval from its lenders to extend its forbearance period until July 30, which means lenders won’t take any action against the company until that deadline. The retailer has until Thursday to complete talks with lenders or face the possibility of a looming bankruptcy, barring another extension. Credit ratings firms have been keeping close tabs on the flailing chain. Another one to keep an eye on is mall operator CBL & Associates and its more than $3 billion in debt. Most of CBL‘s tenants have sought rent relief, either through deferrals or abatements. And retail bankruptcies such as Penney’s are compounding CBL’s financial distress. Many of CBL’s mall tenants have also announced store closures, such as Victoria’s Secret, The Children’s Place and the parent of New York & Co., among others.
Bankruptcies can sometimes pave the way for a shift in a retailer’s business model if the company ends up for sale to a new owner. Ascena is shutting down its plus-size Catherines business and selling the intellectual property to City Chic Collective Limited, which is expected to turn the operation into an online-only platform. But others on the hunt for deals, such as the acquisitive brand management firm Authentic Brands Group and private equity firm Sycamore Partners, both of which have been monitoring the Penney’s bankruptcy, could surface as interested parties if Ascena elects to put itself up for sale. An ABG purchase, or one by any brand management firm, could license the store nameplates overseas as the brand manager finds a partner to operate existing stores. In the case of an acquisition by a private equity firm, the operations likely would stay the same, however.