On Thursday, Ascena Retail Group, the parent company of Ann Taylor Loft and Lane Bryant, filed for bankruptcy protection. It joins the ranks of many major retailers that have done so since the coronavirus started spreading in the United States. Neiman Marcus, J.Crew, Brooks Brothers, and JCPenney have all filed for Chapter 11 bankruptcy protection as well.
Many of the companies were in financial trouble even before brick-and-mortar stores had to close due to the coronavirus, says Jeff Green, a retail real estate consultant. Last year, for example, JCPenney posted losses of $268 million: That was its ninth straight year of losses.
"Covid was really more of an accelerator of what was going to happen with brick-and-mortar retail," he says. "What might have taken two to three years to happen is happening now."
However, just because stores are declaring bankruptcy, doesn't mean you won't be able to shop at them. Here's what it means for you when retailers like Ann Taylor and JCPenney file for bankruptcy protection.
People often think bankruptcy means "business death," says Richard Squire, a law professor at Fordham University who specializes in corporate law and corporate bankruptcy. "You assume a company that goes bankrupt is going to dissolve, but that's not always the case," he says. "Chapter 11 permits a reorganization."
This is as opposed to a Chapter 7 bankruptcy, which is liquidation. If a company files for Chapter 7, this means that selling their assets is more profitable than reorganizing under Chapter 11. "In a liquidation, you are actually going out of business," Squire says. "The more popular [option] is Chapter 11."
Filing for Chapter 11 allows companies to continue to operate while in bankruptcy, in the hopes of reemerging as more profitable. Say a retailer has 1,000 locations but only 600 are profitable. Filing for Chapter 11 might allow the business to break leases and shutter the 400 stores that are not profitable and restructure so as to focus on existing stores and e-commerce.
If you live near a profitable location, the bankruptcy might not affect you at all.
For shoppers, a company filing for bankruptcy protection could have a variety of effects. But for many shoppers, it won't mean that they'll have to shop somewhere else entirely.
The store location near you might close. JCPenney, for example, is closing more than 150 stores, according to CNBC, and Brooks Brothers is closing at least 51 of its 250 North America locations. If you don't live next to one of the profitable branches of a store, or a branch the parent company deems worthy to keep open, then it might be less convenient for you to shop there.
There will be less product. Manufacturers are often less willing to work with a store after it files for bankruptcy protection because they consider it too risky, says Green. So stores "tend to have significantly less product" to choose from. "A great example is Sears," he says, which filed for bankruptcy protection in 2018 and emerged in 2019 after restructuring. "If you go into those stores, they don't have a lot of product."
Your gift card might expire. Half of all Americans have at least one unredeemed gift card, according to a Bankrate study. Gift cards are "the type of thing that could get cancelled" if a company files for bankruptcy protection, Squire says. "There is no guarantee that credit will survive bankruptcy." For example, when Gymboree filed for bankruptcy protection on January 16, 2019, all gift cards had to be used by February 15, according to GiftCards.com. After that, any remaining balance was forfeit.
If a retailer you frequent files for bankruptcy protection, it's smart to quickly cash in any outstanding store credit or loyalty rewards you have, Green says: "Certainly use any gift cards you have now with any retailer."
More from Grow: