America’s once-dazzling shopping industry is facing blow after blow as department stores anchoring malls across the country file for bankruptcy, a move that could leave already struggling shopping malls permanently in the dark.
The latest came Friday when J.C. Penney filed for bankruptcy. The 118-year-old retailer made it through two World Wars, the Depression, the Walmart effect, the Great Recession, the ascent of Amazon and unprecedented self-inflicted wounds as it tried to reinvent the department store.
It took a crippling pandemic to get a company that was founded and flourished first in small-town America and then in its suburban malls into bankruptcy court.
J.C. Penney and other stores have been closed for months to help curb the spread of the coronavirus, resulting in a record 16 percent drop in retail sales. That has left shopping malls to face the grim reality of empty storefronts and late or nonexistent rent payments. Many could be forced to explore a new future focused on entertainment.
“I think a lot of (shopping malls) are going to have to close because they’re simply not going to have enough tenants that are going to be able to pay for their stores,” said Deborah Good, a business professor at the University of Pittsburgh. “They’re not going to be able to pay the rent because they don’t have the customers coming in.
“Malls themselves are going to have to shutter quite a bit.”
At least 400 shopping malls across the country have closed over several decades. Credit Suisse, an investment banking company, predicted in 2017 — long before the current global pandemic — that as many as 275 shopping malls will close by 2022, a possible ripple effect after 8,600 stores shuttered across the country last year, Business Insider reported
Since lockdowns started in March, about 263,250 stores temporarily shuttered during the peak of the virus, leaving most with plummeting sales, according to Neil Saunders, managing director at GlobalData.
Recent research from Green Street Advisors, a real estate research firm, shows that over 50% of department stores anchoring malls across the country will close within the next two years — fast tracking disruptions that had been expected to take five to six years to play out.
The Lima Mall, built by Edward J. DeBartolo, Sr. and opened in 1965, at one time had four anchor stores. Two of those closed in the past five years — Elder-Beerman in 2015 and Sears in 2018. That leaves it with Macy and J.C. Penney. In March, Macy’s furloughed the majority of its 130,000 employees due to the virus. Penney said Friday that it’s exploring a sale of the company as part of the reorganization and will be closing stores in phases during the Chapter 11 process.
Before the pandemic, J.C. Penney had almost $4 billion in debt.
“A huge amount of debt … that makes it really, really hard to get through this crisis because there’s a huge contraction in the amount of money you’re taking in ,” said Mark Matthews, vice president of research development and industry analysis at National Retail Federation. “What most retail businesses are hoping is to get through this period.”
As department store profits continue to fall, malls themselves are left reeling as economic impacts from the virus become more visible.
Indianapolis, Ind.-based Simon Property Group announced the suspension or elimination of more than $1 billion in redevelopment and new development projects. They also borrowed about $3.75 billion. Simon Property at one time owned The Lima Mall, but has since spun the property off into a separate company, Washington Prime Group, which is now named WP Glimcher.
Good predicts business and shoppers at malls will rebound, though only temporarily. A three-month resurgence will give way to slower foot traffic, leaving malls in a position similar to where many of them were months ago.
“I think that malls will need to have different kinds of anchor tenants than they do right now,” Good said. “Macy’s is obviously in a whole lot of trouble, just like J.Crew and other places like that are, so I don’t see major department stores as being the anchors in malls any more.”
Recovering from pandemic
As malls in some parts of the country move to reopen, changes to help keep people safe also could have an impact that is not so easily measured, Good said.
“If you had social distancing and everybody wears masks, how long is that going to go on? Are people going to want to go back to those kinds of dining areas and those entertainment areas or are they not going to want to go back?” Good asked. “Is that going to impact for six months, a year, two years? What exactly is going to be that?”
Gap Inc. plans to reopen about 800 of its 2,406 Old Navy, Janie and Jack, Athleta, Gap, Banana Republic and Intermix stores by the end of the month, the International Council of Shopping Centers reported.
Kohl’s, which is an off-mall department store, reopened 25% of stores starting Monday in Alabama, Alaska, Florida, Georgia, Idaho, Mississippi, Montana, Tennessee and Texas. The chain had already opened stores in Arkansas, South Carolina and Utah.
Penney follows other department stores, Dallas-based Neiman Marcus and Houston-based Stage Stores, into bankruptcy reorganizations. J.Crew also filed this month, and other apparel brands are expected to be forced to into court-led reorganizations or liquidations.
Penney has been trying to claw back from a failed activist investor-led attempt in 2011-13 to transform the business. Retail rock star Ron Johnson was brought in and Penney stores were ripped apart. Dependable basic home goods were removed to install new shops displaying products that were foreign to Penney shoppers, such as expensive paper party products from Martha Stewart, serving pieces from designer Michael Graves and modern bedding from Jonathan Adler.
Also removed were Penney’s $1 billion-a-year brands. St. John’s Bay was replaced with an unknown label from Canada. Percent-off coupons, something devoted shoppers counted on, were replaced with everyday low pricing, confusing shoppers.
Basically, Penney fired its customers who had shopped there for generations for pillows, towels and sheets, Pyrex bakeware, throw rugs, traditional quilts and family apparel in extended sizes.
The Lima News and Dallas Morning News contributed to this report