Independent Retailers May Benefit From Big Store Bankruptcies

Laveta Brigham

The retail fallout has been extreme this year. Coresight Research has estimated that 25,000 stores will close in 2020 — 55 percent to 60 percent of those in malls — as a result of the pandemic and the national lockdown that prevented all but those deemed essential to remain closed […]

The retail fallout has been extreme this year.

Coresight Research has estimated that 25,000 stores will close in 2020 — 55 percent to 60 percent of those in malls — as a result of the pandemic and the national lockdown that prevented all but those deemed essential to remain closed for months.

That pushed many players over the edge into bankruptcy including such household names as Neiman Marcus, J.C. Penney, J. Crew, Stein Mart, Stage Stores, Lord & Taylor and others.

Two of the major players in the men’s market have also succumbed to the pressure. In early July, Brooks Brothers filed Chapter 11 to get out from under a crushing debt load and halted sales due to the coronavirus. The company said it would close about 51 of its 250 stores. And although the business has been sold to Sparc Group, a partnership between licensing company Authentic Brands Group and mall operator Simon Property Group, they have only committed to keeping 125 stores open.

Then in early August, Tailored Brands, owner of Men’s Wearhouse and Jos. A. Bank, followed Brooks Brothers into bankruptcy and said it would close up to 500 of its 1,400 stores in the U.S. and Canada.

But the struggles at such prominent and pervasive men’s retailers may actually wind up benefiting some of the country’s independent men’s retailers, some observers believe. As these chain stores close up shop, men who are still working from home are more apt to visit their local merchants to refresh their wardrobes.

As Fred Derring, president of DLS Outfitters, a buying office for independent retailers, said recently: “Most of the retailers are doing OK. And actually, with the closures of all these larger stores and the move to shop local, they’re actually benefiting.”

Craig Johnson, president of Customer Growth Partners, agrees — at least in some instances.

Apparel sales in general have been shrinking as a percent of the total in recent years on a macro level, and men’s wear — long dependent on tailored clothing and other business attire — was shifting toward a more-casual aesthetic even before COVID-19. Now, no one is going to the office or dressing up much, hitting men’s with “a triple whammy,” he said.

The U.S. market overall is way overstored and the pandemic has led to some much-needed “rightsizing,” he said, for the industry and for men’s wear.

But while smaller stores are not immune to what Johnson referred to as “a downdraft of demand,” strong independents have some advantages.

Citing J. Press, Mitchells, Richards, Wilkes Bashford and Darien Sport Shop as examples, Johnson said that as the larger players close locations, it will “restore more health to the industry. And the stores that are well run will survive because of their strong local patronage, unique positioning and the huge amount of trust they have from their customers. There will always be a market for that.”

While some of the weaker independents will not be able to recover from the economic pressures the pandemic wreaked on their businesses, others will weather the storm. “Some of the independents without strength and staying power won’t make it, but we think there will be winners that will shake out of this,” he said.

Jon Pasternak, a partner at Davidoff Hutcher & Citron LLP, which specializes in retail bankruptcy, said: “As many of the familiar men’s clothing retailers reduce the size of their brick-and-mortar footprint, either to avoid bankruptcy or as part of a restructuring — and others simply liquidate — independent stores may have an opportunity to enter the market or expand their existing business. Even now, more than 20 years after consumers started buying clothes online, many shoppers still prefer to visit stores to try on clothes. As chain stores pull back from secondary and tertiary markets, independents will have a chance to fill that gap, albeit with a reduced overall market. In addition, where local retailers offer services that an online store cannot provide — such as on-site tailoring and personal shopping assistance — there are opportunities to build relationships with customers who will return season after season to outfit their wardrobe.”

Paul Magel, president of the applications division of CGS, which produces software for retail and fashion, said: “One of the major boosts to local specialty shops is the consumers’ desire to buy local in an effort to help their neighborhood shops and local economy to get back on their feet after the pandemic shutdown. These retailers will also benefit from the reduced traffic in the malls, resulting from the health concerns and also from the underlying systemic issues large retailers have been experiencing in recent years. The local specialty shops have to be careful though. These shops are not immune from the new needs of today’s consumer. Any bump they receive due to these industry and economic issues won’t be sustainable unless they provide an attractive destination spot for the new consumer.”

Not everyone is convinced that the independents are in a better position. According to Jonathan Treiber, a retail industry sales expert, because men’s wear tends to be so centered around tailored and work apparel, recovery may take much longer.

“My sense is that certain categories are going to hurt more than others and for a longer duration. Men’s formal wear and work apparel is one of them. The bankruptcies of the larger competitors in the category certainly takes some pressure off of local businesses, but it’s a larger supply and demand issue. With demand suffering and unlikely to return to prior levels any time soon, there’s too much supply of retail offerings.”

In addition, he said, larger companies are typically better capitalized and able to weather the storm better than mom-and-pop stores. “In this case, there are several large chains that weren’t in a stronger financial position to weather the storm. However, that doesn’t mean that mom-and-pop stores will be able to ‘win’ now without those large competitors because demand is down so much across the board. Local businesses are almost always more fragile than much larger competitors and that won’t change in spite of some large retail bankruptcies.”

Also, just because a retailer went bankrupt doesn’t mean they are ceasing operations, he continued. “Assuming Men’s Wearhouse and Brooks Brothers, among others, continue to operate, they will continue to compete and add to over-supply in the market that has seen demand dry up. Only if these retailers liquidate and cease to exist will local businesses perhaps be better positioned to capture demand once it begins to return. This scenario looks unlikely, as the larger competitors look to be restructuring in bankruptcy and continue operations albeit at a smaller scale than before, and local businesses are still likely hurting worse than their larger counterparts with the lower customer demand due to lack of economies of scale.”

Daniel Binder, partner in Columbus Consulting, said that before COVID-19, independents would have benefited from increased traffic following large retail bankruptcies and subsequent store closures. But the most successful retailers during this time are those who have “stepped up to provide a seamless e-commerce experience,” and that’s often not a smaller store. “With this in mind, unless an independent retailer can ‘juice up’ its online presence, it will not stand to benefit from larger chains’ bankruptcies.”

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