What happened

Shares of several brick-and-mortar retail chains opened lower on Wednesday, as investor concerns about the impact of extended store closings were magnified following a Reuters report that J.C. Penney (NYSE:JCP) is considering bankruptcy.

Here's where things stood for these four stocks as of 10:30 a.m. EDT today, relative to their closing prices on Tuesday: 

A Kohl's sign on the outside of a store.

How long can Kohl's hold out with its physical stores closed? Investors aren't liking the answer. Image source: Kohl's.

So what

Several developments were driving investors' concerns about brick-and-mortar retailers on Wednesday morning. Among them:

  • As first reported by Reuters on Tuesday evening, troubled department store chain J.C. Penney is considering filing for bankruptcy protection. The company has enough cash to survive for several months with its 850 stores closed, but with large debt repayments looming and high interest expenses, a rework of its finances under bankruptcy protection may be the best path forward.
  • In a note on Tuesday, Cowen retail analysts led by Oliver Chen said that several big-name retail chains won't be able to survive extended shutdowns without additional cash. The analysts think that Macy's can withstand about four months with its stores closed, while Kohl's has about six months. They believe that upscale chain Nordstrom (NYSE:JWN) is the best positioned of the group, with the ability to hold out for a year with stores closed.
  • Investors may also still be digesting a report by Reuters on Sunday that Macy's has hired an investment bank to explore options to raise cash and restructure its finances. 

What all of these companies have in common is that they closed their retail stores in North America (and for some, elsewhere) in mid-March. With much of their revenue gone for the time being, all are now hunkered down hoping that their cash will last until the COVID-19 pandemic fades. 

Most brick-and-mortar retailers, including Bed Bath & Beyond, Gap, Kohl's, and Macy's, have one other thing in common: Their credit ratings have been cut since the outbreak of the pandemic in the U.S., making it more difficult (or at least more expensive) to raise additional cash. 

Now what

For investors looking for bargains among retail companies, one of the big questions right now has to be this: Can the company hold out long enough to recover without a trip through bankruptcy court? 

I think it's fair to say that these four stocks were falling on Wednesday morning because investors have been asking that question, and they aren't feeling good about the likely answers.