Written by The Public Health Emergency for Covid officially ended this month on May 11, but that doesn’t mean individuals and businesses won’t be feeling its economic effects for years to come. This is especially true for big retail chains.
While retail behemoths like Bed, Bath & Beyond, Neiman Marcus and GNC may have seemed beyond reach for financial disaster, this certainly hasn’t been the case in recent years. In fact, the bigger the company, the harder it falls, and many have fallen hard the last several years, forced to file for bankruptcy and for some, to close their doors for good. Since 2015, 154 major retailers have filed for bankruptcy. You can read about all of them here.
Many of these bankruptcies have occurred in the last three years since the beginning of the pandemic. Because of this windfall of failures, we are now living in what some experts call the “retail apocalypse.”
Why have so many retail giants been backed into a financial corner in recent years?
Big Retailer Bankruptcies and Why They Failed
One simple answer is that Covid wreaked havoc on consumer spending. When stores closed, foot traffic came to an abrupt halt. Some companies simply couldn’t keep up with the lag in sales. But bankruptcies from recent years are more complicated than this. You can’t simply blame Covid. Though the pandemic did accelerate the deterioration for several of these big retailers, in many cases Covid simply exacerbated problems that were already there.
6 reasons big retailers have been filing for bankruptcy since 2020.
1. Changing consumer preferences
David’s Bridal filed for bankruptcy this year for the second time in five years. They cite the pandemic as a major reason for their slowdown in business (many weddings were canceled in 2020 and 2021), but they also reported to NPR that consumer habits have changed around weddings. Many brides choose to buy their dresses online or second-hand, making it difficult for the retail chain to stay relevant in a wedding market that has changed drastically since Covid.
2. Inability to keep up with e-commerce
Bed Bath & Beyond is the most recent big retailer casualty. It filed for Chapter 11 bankruptcy and announced last month it would be closing all of its stores for good. CB Insights says the store’s inability to keep up with e-commerce is one reason the home goods store didn’t weather the pandemic. While its competitors—Target and Walmart—successfully pivoted toward e-commerce years ago, Bed Bath & Beyond struggled to make the shift.
3. Supply chain disruptions
We all know supply chain issues grew exponentially during the pandemic. Travel restrictions, factory closures, and the logistical nightmare that Covid imposed greatly impeded product production and transportation. Party City, a party supply store, felt the effects of the supply chain issues with one of its key products: helium. It’s hard to blow up hundreds of balloons without it. This helium shortage is partly to blame for the company’s filing for bankruptcy this year and potentially being forced to close all of its stores.
4. Debt
Of course debt is the reason any business has to file for bankruptcy, but while some companies can rise above their debt, others are crushed by it. GNC, the vitamin and nutrition supplement chain, was in $1 billion of debt even before the pandemic. They were one of the early companies to file for bankruptcy during Covid in June 2020. They eventually sold to a China-based pharmaceutical company to keep their doors open.
5. Poor contract negotiations
Sporting goods store Olympia Sports filed for bankruptcy and closed permanently in 2022. Its demise can be partly attributed to a contract made with sales and marketing software company Salesforce that went awry, causing the company to have to sell off its best performer, the running company JackRabbit. Most of the company’s leadership followed JackRabbit, leaving Olympia with management struggles. Unable to renegotiate the contract with Salesforce, the company was forced to liquidate and close.
6. Legal complications
Serta Simmons Bedding, the mattress and bedding company that represents a fifth of the mattress market in the U.S., filed for bankruptcy in 2022 citing the pandemic as a major factor. In 2020, the company received a $200 million loan to get them through Covid. They’ve since faced lawsuits regarding how they handled the loan—these lawsuits played a major role in their bankruptcy filing.
It’s sobering to see retail giants fail. If you’re a small or medium-sized business, you may think bankruptcy in this economy is inevitable. After all, 154 only covers the big retail companies. A total of 6,691 businesses went bankrupt in 2021.
But this doesn’t have to be you.
How General Counsel Services Can Help
At Phillips Kaiser, we are no strangers to bankruptcies, what causes them and dealing with the fallout. In fact, I worked for the infamous Enron when it filed for bankruptcy in 2001 and was one of the lawyers handling the bankruptcy estate.
We know what happens when debt, bad contracts, legal issues, poor management and unforeseen events derail a once-thriving company. This is why we do what we do—to make sure this doesn’t happen to you.
The purpose of our General Counsel Services is to prevent the issues you read about above so that—even though we would know how to handle it—you never find yourself before a court filing for bankruptcy. Our General Counsel Services provide everything an in-house legal team would: contract negotiations, corporate governance, strategic legal planning and compliance, outside counsel management and more.
We structured our General Counsel Services so that our clients only work with the expert, or experts, they need who provide only the specific services they need. In the face of rising inflation and a struggling economy, we know putting an entire firm on retainer is not in most businesses’ budgets. With us, you get the benefits of in-house counsel at a fraction of the cost.
Big retailers may be failing left and right, but you don’t have to. Our General Counsel Services can help you not only survive the “retail apocalypse” but come out stronger on the other side.
