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More Than 15,000 Stores Could Close Permanently in 2020

By Daniel B. Kline - Mar 28, 2020 at 11:45AM

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That's dramatically more than last year's record high -- but don't be so quick to blame coronavirus.

The coronavirus pandemic will be blamed, but it's not the only reason retail store closures will set a record in 2020. The virus has, of course, disrupted retail, but most of the permanent shutdowns that will happen this year are likely to be retailers that die faster due to the pandemic, not ones that were healthy before the current crisis hit.

J.C. Penney (JCPN.Q), Sears (SHLDQ), and GameStop (GME 0.40%) had major sales problems before the pandemic forced widespread temporary closures. It's likely that, at the very least, all three will end up permanently shuttering locations even if they can avoid overall bankruptcy.

Coronavirus will be named as the cause, but in most cases, the pandemic is just a final nail in the coffin, not the cause of death.

The exterior of a J.C. Penney

J.C. Penney was in trouble before coronavirus. Image source: J.C. Penney.

How bad will it get?

Last year, a record 9,548 retail stores closed in the United States, according to Coresight Research data reported by Retail Dive. That total is expected to jump to about 15,000 in 2020.

Most non-essential retailers have either closed or greatly reduced operations during the current pandemic. Even the ones that have kept some locations open are almost certainly seeing very limited sales, given that consumers are practicing social distancing and only going out when they absolutely need to.

"We anticipate that some of the retailers that have recently announced temporary store closures -- including some well-known names -- will never reopen their doors," Coresight CEO Deborah Weinswig said in the Coresight report. "The enforced closures will hit retailers with limited cash/low liquidity, those already pinched badly by structural shifts and company-specific weaknesses, and those which are unable to translate whatever remaining consumer demand there is into sales on their websites."

Coronavirus will accelerate closures. It's not generally the cause of them.

J.C. Penney, Sears, and GameStop sell discretionary items -- things people don't really need during the coronavirus pandemic. It's hard to picture people buying new clothes or bedding during a period of economic uncertainty. They may buy video games, but they're more likely to do that directly through their gaming consoles than via GameStop's website.

In theory, a fully healthy economy might have given any of these three chains (and others in similar positions) a chance to make a comeback. The odds, however, were long, as all three of these brands are short on cash. When a retailer (or any other business) does not have working capital, it can't implement changes -- even when, as is the case with J.C. Penney, its management seems to have good ideas.

An accelerated demise, but not the cause

If a very ill person passes out behind the wheel driving to the hospital and dies in a crash, what was the cause of death? It will be listed as a car crash, but really, the underlying illness was the problem.

That's what's going to happen in retail. Coronavirus will speed up a lot of closures and bankruptcies. In most cases, it didn't cause them, even if it does get blamed for them. Media will also throw around the term "retail apocalypse" and cast some blame on the internet, but the reality is that a lot of companies that did not adapt to changing realities and took on too much debt won't be around in 2021.

Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

J. C. Penney Company, Inc. Stock Quote
J. C. Penney Company, Inc.
JCPN.Q
Sears Holdings Corporation Stock Quote
Sears Holdings Corporation
SHLDQ
GameStop Corp. Stock Quote
GameStop Corp.
GME
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