Pandemic claims J.C. Penney, as retail sales plunge

The coronavirus pandemic has pushed troubled department store chain J.C. Penney into Chapter 11 bankruptcy. It is the fourth major retailer to meet that fate.

As part of its reorganisation, the 118-year-old company said late Friday it will be closing some of its stores and will disclose details and timing in the coming weeks.

It operates 850 stores and it has nearly 90,000 workers. It said that it received US$900 million in financing to help it operate during the restructuring.

Penney joins luxury department store chain Neiman Marcus, J. Crew and Stage Stores in filing for bankruptcy reorganisation. Plenty of other retailers are expected to follow.

The filing comes as US retail sales tumbled by a record 16.4 per cent from March to April as business shutdowns caused by the coronavirus kept shoppers away, threatened the viability of stores across the country and further weighed down a sinking economy.

The US Commerce Department’s report Friday on retail purchases showed a sector that has collapsed so fast that sales over the past 12 months are down a crippling 21.6 per cent. The severity of the decline is unrivalled for retail figures that date back to 1992. The monthly decline in April nearly doubled the previous record drop of 8.3 per cent – set just one month earlier.

“It’s like a hurricane came and levelled the entire economy, and now we’re trying to get it back up and running,” said Joshua Shapiro, chief US economist for the consultancy Maria Fiorini Ramirez.

Shapiro said he thinks retail sales should rebound somewhat as states and localities reopen their economies. But he said overall sales would remain depressed “because there is going to be a big chunk of the lost jobs that don’t come back.”

The sharpest declines from March to April were at clothing, electronics and furniture stores. A long-standing migration of consumers towards online purchases is accelerating, with that segment posting a 8.4 per cent monthly gain. Measured year over year, online sales surged 21.6 per cent.

Other than online, not a single retail category was spared in April. Auto dealers suffered a monthly drop of 13 per cent. Furniture stores absorbed a 59 per cent plunge. Electronics and appliance stores were down over 60 per cent. Retailers that sell building materials posted a drop of roughly 3 per cent. After panic buying in March, grocery sales fell 13 per cent.

Clothing-store sales tumbled 79 per cent, department stores 29 per cent. Restaurants, some of which are already starting to close permanently, endured a nearly 30 per cent decline despite shifting aggressively to takeout and delivery orders.

For a retail sector that had already been reeling, a back-to-back free-fall in spending poses a grave risk. Department stores, restaurants and auto dealerships are in danger. Nearly US$1 of every US$5 spent at retailers last month went to non-store retailers, evidence that the pandemic has accelerated the shift towards online shopping.

In the past two weeks, J. Crew, Neiman Marcus and Stage Stores preceded J.C. Penney and filed for bankruptcy protection. UBS estimates that roughly 100,000 stores could shutter over the next five years.

“The whole economic model is unravelling,” Neil Saunders, managing director of GlobalData Retail. “This is going to be very painful. For some, it’s going to be fatal.”

Retailers are being imperilled not only by business shutdowns mandated by states and localities but also by a record loss of 36 million jobs over the past two months.

Spending tracked by Opportunity Insights suggests that consumer spending might have bottomed out around mid-April before beginning to tick up slightly, at least in the clothing and general merchandise categories. But spending on transportation, restaurants, hotels and arts and entertainment remains severely depressed.

Credit card purchases tracked by JPMorgan Chase found that spending on such necessities as groceries, fuel, phone service and auto repair declined 20 per cent on a year-over-year basis. By contrast, spending on “non-essentials,” such as meals out, airfare and personal services like salons or yoga classes, plummeted by a much worse 50 per cent.

–AP