17 December 202122 minute read

The rise of ecommerce of post bankruptcy companies

The US retail industry continues to undergo change. Following the global economic downturn that began between 2007 and 2009, the US retail industry entered nearly a decade of distress, during which the industry experienced increased chapter 11 bankruptcy filings, increased liquidations and the closing of thousands of brick-and-mortar stores. In 2019 alone, retailers announced the closing of over 9,300 stores – an increase of over 50% from 2018.1

In 2020, the COVID-19 pandemic further altered the US retail landscape, speeding up the shifts that were already underway. Government-mandated shutdowns to curb the spread of COVID-19 required many retailers to temporarily close their stores and implement social distancing measures. These measures and the pandemic’s effect on consumer behavior augmented the existing shifts in the retail industry. In 2020 alone, 30 retailers filed for bankruptcy protection.2

Retailers have continued to quickly adapt and alter business strategies to respond to consumer behavior and macroeconomic factors. One such strategy is to shift focus to e-commerce and hybrid retail platforms. In 2020, the drop in in-person shopping was a direct result of social distancing measures, stay-at-home orders, and temporary store closures. Such behaviors seem to be continuing into 2021 and, we expect, 2022, despite the relaxing of these measures. This, further intensifies the need for retailers to focus on the online space and e-commerce-based sales.

Consumer spending habits

Even before the pandemic, e-commerce sales represented a massive portion of overall retail sales growth in the US. For instance, e-commerce accounted for 56% of overall retail growth in 2019, or USD600 billion in sales, and experts project that e-commerce sales may go as high as USD6.5 trillion by 2023.3 Despite how certain retailers fared in 2020, every national market covered by eMarketer saw double-digit e-commerce growth.4 Retail e-commerce sales grew overall by 27.6% in 2020, for a total of USD4.280 trillion, while total worldwide retail sales declined by 3%, to USD23.839 trillion.5

As the US re-emerges from the pandemic, consumer spending has risen. Evidencing pent up demand, retail spending grew 5% year-over-year in August 2021.6 E-commerce sales have continued to experience even stronger growth, rising by about 30% year-over-year in the same time period.7

Distressed retailer shift in focus

Bankrupt retailers acknowledged the shift from bricks-and-mortar retail to online channels well before the COVID-19 pandemic.8 During the COVID-19 pandemic, retailers continued to use bankruptcy protection to reorganize their businesses to adapt to a changing society, right size their brick-and-mortar footprint and shift their focus to e-commerce.9 Distressed retailers consistently report that amid declining sales in both brick-and-mortar locations and online, net online sales have not been as severely affected and, instead, accounted for the majority of total sales in recent years. As a result, many retailers have turned to the chapter 11 process to reject burdensome leases, close failing stores, and redirect funds to grow their e-commerce businesses. These options are not as readily available under non-bankruptcy US law.

For example, Brooks Brothers reported 2019 North America e-commerce sales of USD147 million, 21.3% of North America revenue, but 90% of all North America revenue between March 2020 and July 2020.10 In July 2020, Brooks Brothers filed for chapter 11 protection, closing 51 stores and shifting their focus to e-commerce.11

In June 2020, JCPenney filed for chapter 11, seeking reorganization to sell the business and close over 200 stores.12 JCPenney intended to close 29% of its stores in bankruptcy and to use the process to shed debt.13 Following its purchase by Simon Property Group and Brookfield Property Partners, the business exited bankruptcy in December 2020.14 Since then, JCPenney has closed an additional 170 stores with plans to close more.15 JCPenney’s intention to scale down physical operations is part of a plan to grow e-commerce sales to USD2.3 billion by 2024, up from USD1.5 billion in 2019.16

Of the 38 retailers that have filed for bankruptcy protection since March 2020, 20 reported plans to close at least 25% of their brick-and-mortar stores to adapt to post-pandemic shifts in the industry and have changed their focus to invest in and transition to e-commerce. Others closed a significant but unspecified number of their bricks and mortar locations.

Retailer Date of filing Percentage of stores closed
Art Van Furniture 9 March 2020 100%17
Modell’s Sporting Goods 11 March 2020 100%18
True Religion 13 April 2020 43%19
Roots USA 29 April 2020 78%20
J. Crew 4 May 2020 2%21
Stage Stores 11 May 2020 100%22
J.C. Penney 15 May 2020  29%23
Tuesday Morning 27 May 2020 32%24
GNC 23 June 2020 37%25
G-Star Raw 3 July 2020 100%26
Lucky Brand 3 July 2020 7%27
Brooks Brothers 8 July 2020 51%28
Sur La Table 8 July 2020 42%29
Muji USA 10 July 2020 100%30
RTW Retailwinds 13 July 2020 “A significant portion if not all”31
The Paper Store 14 July 2020 0%32
Ascena 23 July 2020 57%33
Lord & Taylor 2 August 2020 100%34
Tailored Brands 2 August 2020 Up to 35%35
Stein Mart 12 August 2020 100%36
Century 21 10 September 2020 100%37
Furniture Factory Outlet 5 November 2020 54%38
Francesca’s 3 December 2020 33%39
Love’s Furniture 6 January 2021  54%40
Christopher & Banks 14 January 2021 “A significant portion if not all”41
L’Occitane 26 January 2021 14%42
Belk 23 February 2021 0%43
Paper Source 2 March 2021 At least 7%44
The Collected Group 5 April 2021 100%45  

 

Conclusion

As retailers emerging from bankruptcy invest in e-commerce to respond to consumer spending habits, they have much to look forward to. Those retailers that have long invested in e-commerce continue to see success for their efforts and investment. In March 2021, Saks Fifth Avenue entered into a partnership with the Hudson’s Bay Company (HBC) and Insight Partners toestablish their e-commerce business as a standalone entity, Saks, which will feature a hybrid retail and marketplace platform to expand available products and maintain a curated experience46 In October 2021, Saks announced its intent to file an initial public offering at a valuation of USD6 billion, an increase of three-fold from March 2021.47


1Nathaniel Meyersohn, More Than 9,300 Stores Closed in 2019, CNN BUSINESS (Dec. 19, 2019 8:34 AM), https://www.cnn.com/2019/12/19/business/2019-store-closings-payless-gymboree/index.html.
Retail Dive Team, The Running List of 2020 Retail Bankruptcies, RETAIL DIVE (updated Feb. 5, 2021), https://www.retaildive.com/news/the-running-list-of-2020-retail-bankruptcies/571159.
Klaviyo, Consumer Spend is Shifting to Ecommerce: The Untold COVID-19 Story, EMARKETER (Apr. 24, 2020), https://www.emarketer.com/content/consumer-spend-is-shifting-to-ecommerce-the-untold-covid-19-story-sponsored-content.
Ethan Cramer-Flood, Global Ecommerce Update 2021, EMARKETER (Jan. 13, 2020), https://www.emarketer.com/content/global-ecommerce-update-2021. >
5 Id.
Tamara Charm, et al., US Consumer Sentiment and Behaviors During the Coronavirus Crisis, MCKINSEY & COMPANY (Oct. 18, 2021), https://www.mckinsey. com/business-functions/marketing-and-sales/our-insights/survey-us-consumer-sentiment-during-the-coronavirus-crisis.
7 Id.
8 Payless First Day Decl. at 16 (2019); Charlotte Russe First Day Decl. at 11 (2019); Barney’s New York First Day Decl. at 11 (2019).
In re BBGI US, Inc., Case No. 20-11785 (CSS) (Bankr. D. Del. 2020); In re J.C. Penney Company, Inc., Case No. 20-20182 (DRJ) (Bankr. S.D.T.X. 2020); In re Neiman Marcus Group LTD LLC, Case No. 20-32519 (DRJ) (Bankr. S.D.T.X. 2020); In re Muji U.S.A. Limited, Case No. 20-11804 (MFW) (Bankr. D. Del 2021); In re The Collected Group Exports, Inc., Case No. 21-10665 (LSS) (Bankr. D. Del. 2021).
10 Brooks Brothers’ First Day Decl. at 12-13.
11
 Madeline Stone, Brooks Brothers is Permanently Closing 51 Stores as it Enters Bankruptcy During the Pandemic. See Which Have Shut Down So Far, BUSINESS INSIDER (July 8, 2020, 1:51 PM), https://www.businessinsider.com/brooks-brothers-closing-stores-list-addresses-affected-by-covid-19-2020-7.
12
 Sapna Maheshwari & Michael Corkery, J.C. Penney, 118-Year-Old Department Store, Files for Bankruptcy, N.Y. TIMES (May 15, 2020), https://www.nytimes.com/2020/05/15/business/jc-penney-bankruptcy-coronavirus.html; Kelly Tyko, JCPenney Closing More Stores After Bankruptcy. Will Your Store Shutter? See the Closure List, USA TODAY (Sept. 21, 2021, 6:54 PM), https://www.usatoday.com/story/money/shopping/2020/12/17/ jcpenney-stores-closing-march-2021-list-coronavirus-bankruptcy/3940925001.
13 Id.
14Duke Ratliff, JCPenney Names Former Levi’s, Walmart Ecommerce Specialist as CEO, RETAIL TOUCHPOINTS (Oct. 26, 2021, 11:38 AM), https://retailtouchpoints.com/features/news-briefs/jcpenney-names-former-levis-walmart-ecommerce-specialist-as-ceo
15Tyko, supra note 17.
16Bryan Wassel, JCPenney Enters Chapter 11 Bankruptcy, Seeks Financing to Continue Operations, RETAIL TOUCHPOINTS (May 18, 2020, 9:59 AM), https://retailtouchpoints.com/topics/store-operations/jcpenney-enters-chapter-11-bankruptcy-seeks-financing-to-continue-operations.
17Press Release: Art Van Furniture to Close All Stores; Going Out of Business Sales to Start Friday, March 6, ART VAN FURNITURE (Mar. 5, 2020), http://www.prnewswire.com/news-releases/art-van-furniture-to-close-all-stores-going-out-of-business-sales-to-start-friday-march-6-301017308.html.
18 Anne D’Innocenio, Sporting Goods Chain Modell’s to Close its Remaining Stores, USA TODAY (Mar. 11, 2020, 6:44 PM),https://www.usatoday.com/story/money/2020/03/11/sporting-goods-chain-modells-close-its-remaining-stores/5026263002.
19Ben Unglesbee, Ture Religion Exists Bankruptcy, RETAIL DIVE (updated Oct. 20, 2020), https://www.retaildive.com/news/true-religions-bankruptcy-plan-okd-by-court/586547.
20
 The Canadian Press, Roots Closing Seven U.S.Stores, Reports $44.6M Fourth-Quarter Loss, TORONTO STAR (Apr. 29, 2020), https://www.thestar.com/ business/2020/04/29/roots-closing-seven-us-stores-reports-446m-fourth-quarter-loss.html.
21
 Madeline Stone, J. Crew is Closing 8 Stores – See if Yours is on the List, BUSINESS INSIDER (July 23, 2020, 1:58 PM), https://www.businessinsider.com/j-crew-closing-stores-list-of-addresses-closing-2020-7.
22Steven Abrams, Major Retails that Closed in 2021 (Or Are Closing Lots of Locations), OFFERS.COM (Oct.12, 2021), https://www.offers.com/blog/post/ store- closings.
23 Tyko, supra note 17.
24Abrams, supra note 28.
25 Id.
26 Heather McIlvaine, G-Star Raw Permanently Closes 57 Stores After Failing to Find a Buyer, INSIDE RETAIL (Aug. 18, 2020), https://insideretail.com.au/ news/g-star-raw-permanently-closes-57-stores-after-failing-to-find-a-buyer-202008.
27Abrams, supra note 28.
28 Nathan Bomey, Brooks Brothers Store Closings Planned: Retailer Files for Chapter 11 Bankruptcy Protection, USA TODAY (July 8, 2020 3:47 PM), https://www.usatoday.com/story/money/2020/07/08/brooks-brothers-store-closings-brooks-brothers-files-chapter-11-bankruptcy/5396613002.
29
 Kelly Tyko, Is your Sur La Table Closing? The Kitchen Goods Retailer is Liquidating More Stores by the End of September, USA TODAY (Sept. 11, 2020 3:54 PM), https://www.usatoday.com/story/money/2020/09/11/sur-la-table-bankruptcy-store-closures-2020-list-chapter-11/3470551001.
30
 David Moin, Bankrupt Muji USA Closing California Stores, FAIRCHILD MEDIA WWD (July 31, 2020 1:42 PM), https://wwd.com/business-news/retail/muni-store-closings-california-1203692037.
31RTW Retailwinds, Inc. Voluntarily Files Chapter 11 Bankruptcy, BUSINESSWIRE (July 13, 2020, 7:45 AM), https://www.businesswire.com/news/ home/20200713005313/en.
32 Ben Unglesbee, The Paper Store Emerges from Bankruptcy, RETAIL DIVE (Sept. 3, 2020), https://www.retaildive.com/news/the-paper-store-emerges-from-bankruptcy/584661.
33 Kelly Tyko, Ann Taylor, Loft, Lou & Grey Store Closings: These Locations Will Shutter as Part of Ascena Bankruptcy, USA TODAY (July 23, 2020, 1:25 PM), https://www.retaildive.com/news/the-paper-store-emerges-from-bankruptcy/584661.
34 Jordan Valinsky, Lord & Taylor is Closing All of its Stores After 194 Years in Business, CNN BUSINESS (Aug. 27, 2020, 10:37 AM),https://www.cnn.com/2020/08/27/business/lord-and-taylor-store-closures-bankruptcy/index.html.
35Jordan Valinsky, Men’s Warehouse and Jos. A. Bank Are Closing Hundreds of Stores, CNN BUSINESS (July 21, 2020, 3:03 PM),https://www.cnn.com/2020/07/21/business/tailored-brands-closures/index.html.
36Lauren Thomas & Nate Rattner, Bankrupted Stein Mart is Closing All of its Stores. Heres a Map of Where They Are, CNBC (Aug. 13, 2020 12:01 PM), https://www.cnbc.com/2020/08/13/map-bankrupted-stein-mart-is-closing-279-stores-heres-a-list.html.
37Bargain Store Century 21 Closes its Doors After 60 Years, CBS NEWS (Sept. 10, 2020, 12:04 PM), https://www.cbsnews.com/news/century-21-bankruptcy-closing-stores/#:~:text=Century%2021%20Stores%20%E2%80%94%20a%20destination%20for%20bargain,across%20New%20York%2C%20New%20-Jersey%2C%20Pennsylvania%20and%20Florida.
38
 Furniture Factory Ultimate Holding, L.P. First Day Decl. at 2 (2020).
39
 Samantha McDonald, These Francesca’s Stores Are Closing for Good, FOOTWEARNEWS.COM (Dec. 7, 2020, 4:34 PM), https://footwearnews.com/2020/ business/retail/francescas-stores-closing-bankruptcy-1203081648.
40 Candice Williams, Loves Furniture Will Close 13 Stores, Including 10 in Michigan, THE DETROIT NEWS (Dec. 22, 2020, 6:02 PM), https://www.detroitnews.com/story/business/2020/12/22/loves-furniture-closing-13-stores-including-10-michigan/4016622001/#:~:text=The Loves Furniture store consolidation will result in,challenge of servicing those locations due to distance.
41 Kelly Tyko, Christopher & Banks Store Closing Sales: All Locations Liquidating After Retailer Files for Bankruptcy Protection, USA TODAY (Jan. 14, 2020 2:41 PM), https://www.usatoday.com/story/money/shopping/2021/01/14/christopher-banks-stores-closing-chapter-11-bankruptcy-coronavirus/4156233001
42 Sarah Crow, This Beloved Brand Just Filed For Bankruptcy, BESTLIFE (Jan. 27, 2021), https://bestlifeonline.com/loccitane-bankruptcy-news/#:~:text=L%27Occitane%20announced%20in%20its%20bankruptcy%20filing%20that%20it,while%20its%20online%20sales%20rose%20by%20 72%20percent.
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