May 26, 2020 All Industries
Long before brick-and-mortar retailers shut their doors due to Covid-19, they had faced deep struggles.
The rise of online shopping limited their growth and threatened their profits. This left weakened companies trying to navigate the unprecedented impact of the shelter-in-place orders, leading to a rash of bankruptcies. J.Crew Group and Neiman Marcus Group, which both had large debt loads heading into the crisis, both sought Chapter 11 protection in the first week of May, becoming the first big retailers to do so during Covid.
Now, as some states move to reopen operations, how retailers attract customers and boost sales will be the difference between survival and bankruptcy protection. UBS estimates that 100,000 retailers could close over the next five years because of the crisis. This concern has led to some bold strategies implemented by companies and boards to ensure the entire sector recovers.
Since states have taken different approaches to reopening, depending on the level of infections, retailers have kept plans flexible as they unlock the doors. The Gap, which owns clothing stores The Gap, Banana Republic and Old Navy, has targeted 800 store re-openings by the end of the month.
“Our goal is to be responsibly aggressive,” Gap CEO Sonia Syngal told The New York Times. “Every retailer will have its own opening strategy, but suffice it to say we are looking to open where we’re legally allowed to open as soon as we can.”
It’s a similar mindset that Macy’s and mall operator Simon Property Group will employ as well. Simon expects to have 50% of its 209 properties opened by mid-May. But retailers have also needed to implement new rules and restrictions. Simon, for example, has shortened its mall hours in order to conduct overnight sterilization.
Retailers have also added stations for hand sanitizers and are limiting the number of people that can enter a store.
Meanwhile, medium-sized shops that pay rent to strip malls or property owners face similar struggles but with far fewer resources. Brookfield Asset Management, which owns such property, announced it would provide $5 billion in loans to medium-sized businesses that brought in revenues of around $250 million. It will take non-controlling stakes while the companies recover — a dramatic move to ensure its customer base remains operational and pays rent, post-Covid.
As stores re-launch, management and boards will have to weigh the ability to reopen against early indications that consumers may be hesitant to shop in a crowded store.
Managing what to do if demand doesn’t return quickly may be every retailer’s greatest threat.