Retailers filing for bankruptcy during the coronavirus pandemic have stressed the urgency of their mission. But the question of store safety, for employees and customers, looms over efforts to execute ambitious restructuring plans geared around exiting bankruptcy within months, experts said.
For instance, when Neiman Marcus Group filed for Chapter 11 this month with a restructuring plan in hand, its attorneys told the court that speed was crucial, even as they acknowledged the uncertainty around when stores could safely reopen.
“The most important thing about retail cases is getting out of Chapter 11 as quickly as you possibly can, so that you can commence operations in the ordinary course,” Chad Husnick, a partner at Kirkland & Ellis LLP, which represents the retailer in the proceedings, said at its first-day bankruptcy hearing.
Husnick also acknowledged the unique risks at play in proceedings that he told the court are taking place “against the backdrop…of not knowing when COVID-19 is going to go away — not knowing if COVID-19 is going to go away temporarily, or decrease temporarily as we make efforts to flatten the curve, or if it’s going to re-peak again.”
The reference to flattening the curve reflected the directive of the Centers for Disease Control and Prevention to keep the number of COVID-19 cases from spiking too sharply. The guidance was the impetus behind lockdown orders that went into effect around the U.S., which temporarily shut the doors of nonessential retailers in March and April.
Retailers in bankruptcy are dealing with the prospect of heavy cash burn — Neiman’s, for instance, is expecting to spend more than $300 million until stores reopen in July or August. But they face a difficult balance between the need to reopen stores, while investing in the safety of doing so, experts said.
“In terms of a quick exit from bankruptcy, they’re not going to be able to do that until they have revenues,” said Nathalie Martin, a professor at the University of New Mexico School of Law, speaking generally about retailers in bankruptcy.
“There’s definitely a lot of tension between safety concerns, and the need to have revenues,” she said.
J.C. Penney Co. Inc., which also filed for bankruptcy this month, had outlined a restructuring goal that contemplates having a bankruptcy plan or a sale confirmed in about five months, has already reopened some stores and will reopen more.
In its own first-day hearing, a rare event to take place on a Saturday in a reflection of its time crunch, its advisers emphasized those plans.
“We’ve built in relief in our financing arrangements to do as much acceleration of store openings as we possibly can, subject to governmental approvals,” Joshua Sussberg of Kirkland & Ellis, an attorney for J.C. Penney, told U.S. Bankruptcy Judge David Jones at the retailer’s remote bankruptcy hearing earlier this month.
Of its more than 800 stores, Penney’s has now reopened 153 stores in the U.S, and plans to reopen about 150 more stores on May 27, according to a representative for the retailer. In a business plan filed this month with regulatory officials, the retailer indicated plans to close more than 240 stores.
The retailer is implementing safety measures, including offering contact-free curbside pickup, cleaning stores “throughout the day,” providing store employees with masks, and training them on safety protocols, according to the company. Stores will also operate under temporarily reduced hours.
“We want to ensure everyone is safe and feels comfortable as we continue to provide an engaging shopping experience,” Jim DePaul, executive vice president of stores at J.C. Penney, said in a statement. “We’re taking a strategic approach in reopening our stores nationwide and will continue doing so in a phased approach based on guidance from the CDC and local and state mandates.”
For its part, Neiman Marcus, which has 67 stores including Bergdorf Goodman and Last Call locations, has opened 12 Neiman Marcus stores, though just for private appointments, according to the company. Some 34 Neiman Marcus stores are also open for curbside pickup.
J. Crew Group Inc., which had filed for bankruptcy this month and sought a 60-day deferral to pay rent, is also contending with the timing of reopening stores. This week, its landlords filed an objection to its request, arguing that most states have eased lockdown restrictions and that the retailer should be able to reopen its stores sooner.
J. Crew has sought to signal that its reopening will hinge on official restrictions rather than bankruptcy-related pressures, and said on its web site it will “only reopen stores in areas where it’s permitted by local law and where we can implement enhanced health and safety protocols.”
For department stores and apparel stores, where these types of illness-related safety measures haven’t traditionally been part of their operational procedures, reopening in this environment will impose new requirements, experts said.
For instance, the Retail Wholesale and Department Store Union, which represents Macy’s Inc. employees, has recently pointed out their own members’ safety concerns about returning to work, particularly if only employees are required to wear masks, but not customers.
“Now with COVID-19, suddenly these retailers are expected to operate with a high level of safety,” said Saravanan Kesavan, a professor at the University of North Carolina at Chapel Hill business school, who studies supply chain management and the retail workforce, who spoke generally.
“They need to develop processes, they need to train their employees, [and] to reinforce safety principles, in order to make sure they can safely operate stores for employees and customers,” he said.