Retail sales plunge record 16% in April as giants declare bankruptcy – and JC Penney could be next – The Sun
RETAIL sales plunged 16 percent in a record low as giants declare bankruptcy — and JC Penney could be next during the coronavirus crisis.
From March to April, records tumbled as the COVID-19 pandemic kept shoppers at home, resulted in mass layoffs, and threatened the viability of many stores.
In just two weeks, J.Crew, Neiman Marcus and Stage Stores filed for bankruptcy protection with JC Penney slated to meet the same fate.
Sources told CNBC JP Penney's advisors are currently working on a bankruptcy filing but final negotiations between JC Penny and its lenders could bleed into the weekend and delaying it.
It would be the latest retail juggernaut to go bankrupt as roughly 100,000 stores could shutter over the next five years after many closed their doors indefinitely, UBS told the Associated Press.
The news comes after clothing-store sales tumbled by 79 percent and department stores fell by 29 percent last month as 36 million people were laid off in a two-month period.
The shopping sector collapsed so rapidly that sales over the past 12 months plummeted by 21.6 percent and the severe decline is the worst since 1992.
The monthly dip in April nearly doubled the previous record drop of 8.3 percent set just one month earlier.
'LIKE A HURRICANE'
For a retail sector that had already been reeling, a back-to-back free-fall in spending poses a grave risk, leaving department stores, restaurants and auto dealerships in danger.
"Its like a hurricane came and leveled the entire economy, and now were trying to get it back up and running," said Joshua Shapiro, Chief US Economist for the consultancy, Maria Fiorini Ramirez.
Overall, sales would remain depressed, Shapiro said, "because there is going to be a big chunk of the lost jobs that don't come back" even after the country reopens.
This could be JC Penney's fate, which has 846 stores in the US reportedly plans to emerge from bankruptcy protection.
If it does close, around 180 to 200 stores will shutter but the number may fluctuate pending creditor negotiations, insiders told the station.
JC Penney employed about 90,000 full-time and part-time workers as of February but it has struggled with a $4billion debt load and competition before COVID struck.
A source told Reuters the company is in discussions with creditors for a so-called debtor-in-possession loan to bolster finances while it navigates bankruptcy proceedings.
The loan could be anywhere from $400million and $500million, insiders said, but JC Penney declined to comment when pressed by the publication.
JC Penney missed a $17 million debt payment last week and will default in five days if it's not paid, while the $12million payment the company skipped back on April 15 ends Friday after a 30-day grace period.
Clothing, electronics and furniture stores suffered the sharpest declines from March to April as the pandemic swept through the country, crippling the US economy.
Auto dealers experienced a 13 percent drop, while furniture stores dealt with a 59 percent plunge. Electronics and appliance stores were down over 60 percent while building material retailers fell around 3 percent.
Even the grocery industry took a hit despite the mass lockdown panic buying in March, falling by 13 percent during this uncertain period.
Restaurants – many of which are already closing – endured a nearly 30 percent decline despite an aggressive shift to takeout and delivery.
The crisis has seen online shopping ramp up with monthly gains of 8.4 percent which is set to surge to 21.6 percent by the end of the year.
Nearly $1 of every $5 spent at retailers last month went to non-store retailers, evidence that the pandemic has accelerated the shift toward online shopping.
Academic economists said a one-month closure could wipe out 31 percent of non-grocer retailers, with a four-month closure shuttering 65 percent.
Donald Trump has emphasized the need to prop up the flailing US economy but the coronavirus death toll topped 85,000 this week and the contagion is still spreading in some states.
ECONOMY IN CRISIS
The plunge in retail spending it one of the main reasons the economy is contracting.
Retail sales make up roughly half of all consumer spending, which accounts for 70 percent of economic activity.
The rest includes services like cellphone and internet contracts, gym memberships and child care.
With few Americans shopping, traveling, eating out or otherwise spending normally, economists are projecting that the gross domestic product the broadest gauge of economic activity is shrinking in the April-June quarter at a roughly 40 percent annual rate – the deepest quarterly drop on record.
COMFORT AND CONVENIENCE
CSolutions, which monitors sales of packaged goods, noted a shift to comfort and convenience as people stock up on baking flour, tomato sauces, ice cream, premixed cocktails and breakfast sausages.
Pajama sales rocked 143 percent from March to April, according to Adobe Analytics, which monitors online retailers, whereas pants, jacket and bra sales have declined.
Consumer spending might have bottomed out around mid-April before a slight uptick in clothing and general merchandise categories, spending trackers say.
But Americans are no longer spending on transportation, restaurants, hotels and arts and entertainment, which all remain severely depressed.
JPMorgan Chase found that credit card users buying groceries, fuel, phone service and auto repair declined 20 percent on a year-over-year basis.
While large department stores like JC Penney are in crisis, spending on non-essentials, like meals out, airfare, salon purchases or yoga classes, have also plummeted by 50 percent.
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