‘A scary number’ of retail companies are facing bankruptcy amid the coronavirus pandemic

GNC has walked through death’s door after knocking on it for years. And it’s likely others will follow suit this year as the COVID-19 pandemic continues its devastation of America’s retail sector.

The 85-year-old vitamin seller filed for bankruptcy on Wednesday after years of battling waning sales and a debt load north of $1 billion. GNC plans to shutter up to 1,200 stores across the U.S. The company operates more than 5,800 stores.

Meantime, fellow debt-laden mall dweller J.C. Penney said on Tuesday it will close another 13 stores as part of its recent bankruptcy filing. The company told the courts in May it would shutter a total of 250 stores by the end of summer 2021, leaving it with a shade under 600 locations.

To be sure, 2020 is shaping up to be one of the deadliest ever for the former icons of the mall and various shopping centers. The pandemic has kept stores closed for months and sent sales for the sector into a tailspin. With consumers only slowly venturing back out to stores after months of being quarantined, retailers are being faced with the reality they need fewer stores open…or should no longer be in business at all.

“Some companies are just not going to survive this,” says McGrail, who is the COO of one of the world’s largest asset disposition and valuation firms, Tiger Capital Group. Its McGrail’s team — which often includes store associates of a stricken retailer — that hangs the “Everything must go” signs and works to fetch top dollar on fixtures and other inventory.

McGrail declines to say which retailers have been calling him up for asset appraisals, except to note the names wouldn’t be any big shock.

Such is the current life for McGrail and others in the retail bankruptcy and restructuring fields. In talking to a host of experts, one thing is abundantly clear: A thunderstorm of bankruptcies in retail are about to rain down on Wall Street thanks to the aftershock of the coronavirus.

Once formidable retailers such as Neiman Marcus (filed for bankruptcy in May) will either vanish entirely or emerge from bankruptcy with 75% smaller store networks. Those retailers that somehow manage to avoid bankruptcy by way of a creative debt raise or other restructuring will find the road ahead bumpy at best.

‘That’s a scar number’

While GNC’s bankruptcy is a headline maker, the fact is we haven’t seen a strong uptick in bankruptcies just yet for several reasons, experts explain.

First, preparing for a structured entry into bankruptcy typically takes two to three weeks. Retailers were only thrust into mass social distancing driven store closures in mid- to late-March. Most held out hope they would reopen stores in April, which pushed off bankruptcy planning. Secondarily, even the worst positioned big name retailers still had enough cash on hand to move through April and May (especially with workers furloughed) — that allowed executives to consider all options besides a headline-grabbing bankruptcy.

And lastly, one of the benefits of a retailer filing for bankruptcy is to raise cash for creditors by holding store closing sales. That couldn’t happen with state mandated store closings.

Now all bets are off this summer as states allow malls and retailers to reopen.

“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,” says Stifel managing director Michael Kollender, who leads the consumer and retail investment banking group for the firm. Kollender and his colleague James Doak at Miller Buckfire (Stifel’s restructuring arm, where Doak is co-head) have worked on dozens of consumer and retail bankruptcies in recent years, including Aeropostale, Gymboree and Things Remembered.)

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