The persistent global health crisis led to a spike in Chapter 11 filings last month, further threatening companies across the board. However, fashion retail remained in the clear — potentially suggesting that the sector’s darkest days might be behind it.
According to S&P Global Market Intelligence data, 61 companies filed for Chapter 11 protection in March — nearly double February’s total and the biggest one-month tally since July last year, when the COVID-19 outbreak was ravaging the United States. The data included public or private companies with a minimum of $2 million in assets or liabilities at the time of filing, in addition to private companies with at least $10 million in assets or liabilities.
Still, there appears to be a silver lining: The financial services firm reported that the broader pace of casualties during the first quarter of 2021 was slower than in the prior-year period. As of the end of March, 138 companies had announced bankruptcy filings — fewer than the 153 filings during the same period in 2020 and lower than all but four of the previous 11 years (2014, 2015, 2017 and 2018).
Many of the companies that went bankrupt were in the consumer discretionary sector — including restaurants, hotels and department stores — followed by the industrial, information technology and financial industries.
While some experts do predict that pandemic-related business aftershocks — think lesser leniency from banks and long-term changes to consumer behavior — could lead to more Chapter 11 filings later in the year, others suggest that many of the companies that were struggling have already waved the white flag. For instance, last year, J. C. Penney Company Inc., Neiman Marcus Group Inc. and J.Crew Group Inc. were among the major nationwide chains that filed for bankruptcy following years of financial weakness.
So far this year, only two fashion retailers have gone bankrupt: In mid-January, Christopher & Banks Corp. sought protection in New Jersey bankruptcy court, where it announced that it would shut down a “significant portion, if not all” of its then-449 brick-and-mortar fleet. Then, in late February, Belk Inc. — recognized as the country’s largest privately owned department store chain — appeared in Houston bankruptcy court with the expectation of completing its financial restructuring through an expedited “pre-packaged, one-day” reorganization.
S&P researchers, who cited industry experts, reported that total bankruptcies are forecasted to remain below predictions, with a slower pace of filings in the second and third quarters before a possible bump in the fourth quarter. A weak financial cushion, minimal e-commerce presence and a high dependence on mall space, according to some analysts, could worsen those challenges for some retailers and push them to the brink of bankruptcy or mass shutdowns.