To Close or Not to Close? What’s at Stake for Sears, Dillard’s and Other Retailers That Remain Open During the Pandemic
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While many stores across the country have been dark over the past couple weeks, a number of companies have kept their brick-and-mortar operations up and running amid the spread of the coronavirus — and analysts are sounding the alarm.
According to research agency GlobalData Retail, roughly 45% of physical stores are closed to the public after the federal government instituted strict guidelines on large gatherings and shared spaces. On Sunday, those restrictions were extended through the end of April.
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However, some retailers that remain open — including Sears, Hibbett Sports and Dillard’s — have drawn the ire of market watchers, who suggest that the decision to operate business as usual could be perceived as insensitive or shortsighted during a pandemic.
Hibbett, for example, announced in its fourth-quarter earnings conference call on March 20 that its stores are still operating, albeit at reduced hours and with fewer staffers on the floor. The Birmingham, Ala.-based retailer added that its employees as well as customers “have expressed their desire for us to remain open.”
In a distribution note, Susquehanna Financial Group analyst Sam Poser explained that employees and customers may not understand the gravity of the health crisis. He urged Hibbett to “take a leadership role” as several states have implemented shutdowns of all nonessential businesses under which many retailers are classified.
“The decision not to temporarily close stores during the coronavirus outbreak puts the health and well-being of [Hibbett’s] customers and employees — as well as the health and well-being of Hibbett’s historically very good reputation — at risk,” he wrote last week. “We believe the long-term risk Hibbett is taking by keeping stores open, even at reduced hours, far outweighs the benefits from potential short-term sales.”
Department store chains Dillard’s and Sears have also kept their doors open despite the domino effect of retailers shuttering their stores. Health authorities have issued warnings over the illness’s potential to spread even more in the coming weeks.
In a statement to FN, a Dillard’s spokesperson said, “We are open in markets where we are not directed to close by government mandate. We are promptly following any such directives.” Sears, on the other hand, said that it opted to keep its remaining stores open to offer “essential products and services” during the crisis.
For what it’s worth, some insiders have suggested that seeing stores still in operation can offer a glimmer of hope to despondent consumers. What’s more, some retailers that have remained open amid the pandemic are doing so for philanthropic purposes: Jo-Ann Fabrics, for example, is offering free materials to customers so they can make masks to donate to hospitals and using its outposts as collection points. Further, it has opened classrooms at some locations, complete with sewing machines and instructions, for those who want to help create the products. The spaces, the company said, adhere to CDC guidelines for social distancing as well as to local mandates that limit the number of people who can gather in a group.
In other cases, maintaining open hours may be key to helping some prevent or extend their need to implement furloughs, particularly as an increasing number of retailers are announcing sweeping layoffs and pay cuts to keep their businesses afloat.
Further, for some companies, particularly those that are struggling, keeping their lights on could mean the difference between staying alive or succumbing to these challenging times. According to a report released last week by Coresight Research, the United States could see more than 15,000 store closures this year, up from a record high 9,548 closures in 2019.
“The enforced closures will hit retailers with limited cash [or] low liquidity — those already pinched badly by structural shifts and company-specific weaknesses, and those that are unable to translate whatever remaining consumer demand there is into sales on their websites,” the research firm forecasted.
Coresight estimated that some already-beleaguered retailers could be forced to file for bankruptcy should the coronavirus pandemic worsen. While Sears is still in Chapter 11, Dillard’s early this month was downgraded by S&P Global analysts, attributing its BB rating to the chain’s “weak operating results for the holiday season and full year 2019, with a continued profitability decline from previous years.”
The outbreak’s impact is anticipated to be “especially hard on retailers of discretionary goods,” said Coresight researchers, who listed apparel and department stores as potential victims. It also expects home goods, electronic and appliance purveyors to be “significantly affected,” while retailers that sell essentials should see “sustained demand,” including a surge in the short run.
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