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Retailers deemed 'nonessential' are in big trouble

Ben Muessig, Los Angeles Times on

Published in Business News

U.S. retailers have laid bare the consequences of being deemed "essential" in the COVID-19 pandemic, as sales surged at those allowed to stay open but collapsed at department stores, clothing chains and other outlets forced to fall back on their online operations.

Financial results published this week have demonstrated how sometimes-contentious designations by various U.S. cities and states have influenced billions of dollars' worth of consumer spending.

Macy's, Ross Stores and Victoria's Secret owner L Brands each slumped to a quarterly loss after their stores were closed -- in stark contrast to Walmart, which posted its biggest rise in quarterly U.S. sales in 15 years.

"You've got a whole slew of retailers whose sales were already slow, and they happened to be nonessential," said Ken Perkins, head of the research group Retail Metrics. "As if things weren't trending away from them, this just accelerated it."

Macy's warned it was set for a $1 billion quarterly operating loss after the closure of all its approximately 775 stores, including the Bloomingdale's chain, caused a "precipitous decline" in revenues.

While its balance sheet has been in better shape than peers JCPenney and Neiman Marcus, both of which filed for bankruptcy protection this month, the closures have accelerated a decline at the company. Its total debt has swelled from $4.7 billion to an estimated $5.7 billion over the past year compared to an equity market capitaliation of $1.7 billion.

 

Jeff Gennette, Macy's chief executive, said business was likely to recover only "gradually." The group said it had about 190 outlets open and expected another 80 to be up and running this weekend.

Foot Locker on Friday said more than half its 3,100 stores around the world -- most of which are in shopping malls -- were still closed, as the New York-based company reported a first-quarter net loss of $98 million and a 43% drop in sales to $1.18 billion.

In a sign that some of the effects of the crisis will be lasting, L Brands laid down plans this week to permanently shut 250 Victoria's Secret stores across North America over the next several months. Quarterly net sales at the long-struggling company, which temporarily closed all its North America stores in March, dropped 37% from a year ago to $1.65 billion, and it had net losses of $297 million.

The widespread closures have given a huge boost to the handful of companies that have been allowed to stay open by local authorities because they sell food and other "essential" items.

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