10 Retailers That Need a Big Holiday Season to Survive

Among the many victims of the coronavirus pandemic has been the retail industry. Sales at brick-and-mortar stores plunged during the early lockdown days and are still down sharply in a number of segments like apparel, department stores, and mall-based chains.

The holiday season is always a crucial time of year as retail sales spike when Americans typically pour into stores between Black Friday and Christmas to buy gifts for loved ones, but this year the industry is desperate for a spending surge to make up for steep losses earlier in the year. A number of retailers are already teetering on the edge of bankruptcy. Let’s take a look at 10 chains that may not survive without a strong holiday season.

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One of the biggest collapses in the retail industry in recent years has been Francesca’s Holdings (Nasdaq: FRAN). The stock is down 98% over the last five years, and nearly all of those losses came before the pandemic. The company has seen sales and profits steadily erode, and like other mall-based sellers of apparel, jewelry and gifts, the company has been disrupted by e-commerce and been pressured by an overstored retail environment.

Its challenges have only been exacerbated by the pandemic. The company said in November that it would close about 140 of its stores by the end of January and warned that it could be forced into bankruptcy protection if it can’t obtain additional financing in the coming weeks. With coronavirus cases spiking across much of the country, the holiday season will be a difficult one for Francesca’s.

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Department stores have been among the biggest losers during the pandemic, though many of them were already ailing before, as the 20th century model is an awkward fit for consumers increasingly looking for e-commerce and omnichannel options. Southern department store chain Belk looks like it could be the next victim.

The company already filed for bankruptcy protection once during the pandemic, back in May, and is now at risk of another failure. Vendors say they are not being paid on time, a warning that its cash position is weak, and the rise in coronavirus cases is likely to dampen traffic during the key holiday season. Some vendors may stop shipping merchandise to Belk, which would send the company into a death spiral. Private-equity owner Sycamore Partners may choose to liquidate the company rather than endure another bankruptcy filing.

Like other apparel retailers, Express (NYSE: EXPR) has had a tough time this year. The mall-based chain has been struggling for years, but the pandemic has thrown its challenges into sharp relief.

Revenue fell by nearly 50% in the second quarter, and the company burned through $180 million in cash. Express said it had $425 million in liquidity benefits and finished the quarter with $192.3 million in cash.

The company will report third-quarter earnings on Dec. 3, and investors will be parsing the results for signs of the company’s recovery prospects. While a coming vaccine may help the company raise funds, investors may be reluctant to assist the company if it doesn’t show any signs of recovery in its third-quarter report. Similarly, the holiday season could be make-or-break for the company.

The party could soon be over for Party City (Nasdaq: PRTY). The celebration-focused retailer was struggling before the pandemic, and the crisis has been particularly painful for businesses focused on social gatherings like Party City, which specializes in balloons, party favors, holiday-themed decorations, and paper products.

Sales declined only slightly in the third quarter as the company recovered from the headwinds earlier in the year during the lockdown period, but it still faces a sizable debt burden at $1.3 billion.

A debt swap earlier this year relieved $450 million from its balance sheet, but turning around the business even after the pandemic won’t be easy.

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Women’s apparel retailer J. Jill (NYSE: JILL) has been on a rocky road since its 2017 IPO, as the company has struggled to grow sales and profits in an overcrowded sector.

The pandemic has been especially hard on retailers like J. Jill as customers simply don’t need to purchase new clothes for the office or even socializing these days.

The company staved off a Chapter 11 bankruptcy filing in September by negotiating with lenders for an out-of-court restructuring deal. In November, the company did a 1-for-5 reverse stock split in order to stay in compliance with New York Stock Exchange trading standards, but the move shows investors continue to flee the stock.

After sales fell by nearly 50% in its second quarter, the company faces an uphill climb heading into the holiday season.

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J. Jill isn’t the only struggling women’s apparel retailer. Chico’s FAS (NYSE: CHS), the parent of Chico’s, White House Black Market, and Soma, is also facing the threat of bankruptcy. Its Canadian subsidiary already filed for bankruptcy protection earlier this year, and the company’s latest financial results aren’t encouraging.

Comparable sales fell 24% across the company in its third quarter, and it reported a free cash flow loss of $72 million. The retailer has seen an improvement from the second quarter and has been able to alleviate its cash burn with the help of rent abatements. Still, it had $149 million in debt at the end of its third quarter, and current liabilities had nearly topped current assets, indicating the company may struggle to pay its bills.

A strong holiday season could help put the company back on its feet, but that will be difficult during a pandemic.

Big-and-tall clothing retailer Destination XL (Nasdaq: DXLG) could also go bust this year. S&P Global Market Intelligence put the company on its list of most vulnerable retailers in August. Revenue fell 20% in the third quarter to $85.2 million, and the company lost $11.6 million in free cash flow through the first three quarters of the year. Even before the pandemic, Destination XL was shrinking its store base, so a comeback after the pandemic seems unlikely.

It finished the third quarter with $82 million in debt, including borrowings from its credit facility, and that debt burden could pressure the company into bankruptcy. Even if it survives past the holiday season, its prepandemic track record is not encouraging.

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Women’s apparel retailer Christopher & Banks has been teetering on the edge of bankruptcy seemingly for years, and it has long been cited as being at high risk of default. The pandemic has squeezed an already-struggling retailer, making a Chapter 11 filing likely. It was delisted from the New York Stock Exchange last year as its market cap, which is now just $10 million, was too low to remain on the exchange.

Revenue was down 30% in its most recent quarter, and the company had a free cash flow loss of $20 million. Considering Christopher & Banks was already on the decline before the pandemic, it doesn’t seem like a matter of if but when the company will seek bankruptcy protection.

Office retail has been struggling for the years as communications have mostly gone digital and machines like copiers and faxes aren’t the fixtures they once were. ODP (Nasdaq: ODP), the company formerly known as Office Depot, has diversified away from retail with its 2017 acquisition of IT services provider CompuCom.

However, the pandemic has been particularly challenging for the office retail sector as offices are mostly closed and companies are instead relying on digital solutions.

ODP’s recent quarterly report helped restore investor confidence despite a reported net loss of $337 million through the first three quarters of the year. The company may have weathered the worst of the pandemic-related challenges, but the shift away from office products and move toward working from home bode poorly for the stock.

AMC Entertainment (NYSE: AMC) isn’t technically a retailer, but the movie theater operator faces the same threats as many of its mall-based peers. In fact, it warned back in October that it could go bankrupt by the end of this year or early next year if it doesn’t receive a cash infusion.

The company has been hammered by the pandemic as theaters were closed from March to August, and since then capacity has been limited and studios have been reluctant to release movies in theaters.

Considering the spike in coronavirus cases, AMC may face a dire situation in the coming months. However, the prospect of a vaccine makes it more likely that the company will find a lender before it runs out of cash.

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The good news for the retail sector is that the National Retail Federation still expects strong growth for the holiday, calling for sales to be up 3.8% to 5.2%. Consumers still have money to spend from earlier stimulus payments and a lack of other spending options, which have driven savings rates.

However, many of the companies above are operating in retail subsectors that have struggled for the duration of the pandemic. Whether they can take advantage of the gift-giving season remains to be seen, but this may be their last best chance to avoid bankruptcy proceedings.

Jeremy Bowman 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.