The party is over for struggling retailers that enjoyed a pandemic-era boost, benefiting from cheap loans and stimulus-driven spending.
The party is over for struggling retailers that enjoyed a pandemic-era boost of cheap loans and stimulus-driven spending.Unfortunately, it’s about time.
The spate of bankruptcies comes at a time when Americans have pulled back on discretionary spending and begun socking away more in savings as the cost of gas, groceries and other staples becomes more expensive, talk of a potential recession continues and major companies conduct layoffs. Consumer spending is watched closely since it accounts for more than two-thirds of the nation’s gross domestic product.
The pandemic bought many retailers more time. Consumers spent freely, flush with cash from stimulus checks and unable to put it toward vacation or dinner and a movie. Retailers were also able to borrow money on the cheap. Retailers who loaded up on debt are having a harder time making payments as they watch sales and profits deteriorate. For instance, discount home goods retailer Tuesday Morning referenced its “exceedingly burdensome debt” in February when filing for bankruptcy for the second time in two years. Its net debt has increased tenfold, jumping from $23 million in 2019 to some $250 million last year. Sales during that time fell by 25%.
“A lot of these companies were essentially zombie companies pre-Covid,” said Craig Ganz, an attorney at Ballard Spahr who has handled retail bankruptcies for several decades. “They were primarily surviving on debt, and now debt has become simply too expensive for them to afford.”
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