Shopping Malls Suffer the Trickle-Up Effects of Retail Bankruptcies
OK, so “trickle-up effect” may not be a thing, but retail bankruptcies are on the rise and the impacts aren’t limited to the suppliers of inventory and the retail employees. As stores liquidate and close locations, shopping mall owners are losing tenant revenue, leading to their own bankruptcies.
Over 20 Big Name Retailers Have Filed for Bankruptcy in 2020
I won’t rehash the entire list here, but the ever-growing retail bankruptcy casualties of 2020 include Tailored Brands, Lord & Taylor, Ascena, Sur La Table, Lucky Brand, Neiman Marcus, Modell’s Sporting Goods, J. Crew, Centric Brands, Pier 1, and popular anchor store J.C. Penney.
If those that have filed isn’t enough, over a dozen other retailers are at risk of bankruptcy in 2020. According to Retail Dive, retailers like Express, J. Jill, Rite Aid, and DSW are high risk; not to mention recent headlines made by stores like Guitar Center and Petco.
The reality is retail wasn’t exactly thriving prior to the pandemic, but the pandemic has certainly not done the industry any favors. Brick & mortar retailers have been struggling to compete with the ease and variety of online shopping. Add in the complexities of a pandemic, and it’s a perfect storm for insolvency.
Recently, two large shopping mall entities have filed for bankruptcy protection: Pennsylvania Real Estate Investment Trust (PREIT) and CBL & Associates Properties (CBL). How large is large? Bloomberg states the two entities account for over 87 million square feet of real estate across the U.S. and CNN Business says PREIT and CBL own about 130 malls nationwide.
Both PREIT and CBL stated a decrease in revenue from uncollected rents, a decline in consumer traffic, and existing debt in the billions, led to the bankruptcies. According to one report, more than 30 of CBL’s tenants have filed for bankruptcy in 2020.
PREIT’s bankruptcy petition estimates the company’s assets are $50M to $100M with liabilities of $1B to $10B (yes, billion), and it anticipates there will be enough funds to pay unsecured creditors. Its list of top creditors includes claims ranging from $800,000,000 owed to Wells Fargo Bank and over $200,000 owed to various construction companies.
CBL’s bankruptcy petition (which includes its 176 affiliates) estimates assets and liabilities are between $1B to $10B and anticipates funds will be available to pay unsecured creditors. Its list of top creditors includes a claim of $1.3B owed to Delaware Trust Company and several hundred thousand owed to various construction companies and suppliers.
Why These Bankruptcies Matter if You are Supplying Inventory to Retail
You don’t need me to tell you the heightened risk in retail, but you may want to look at these risks from a different angle. What happens if these malls close? What happens to the tenants and their unsold inventory? YOUR unsold inventory. File UCCs, even in consignment situations. In recent years we have seen the impact of unsecured consignment sales (um, Sports Authority bankruptcy) – you can’t afford to be unsecured in this economic climate.
Why These Bankruptcies Matter if You Are in Construction
In these two cases, not only are the various retail tenants at risk, but every company that is furnishing or has furnished to any improvement to these properties is also at risk. Yes, I’m talking to you – you, the company that furnished a new HVAC system, replaced the escalator, fixed the roof, and even replaced the store front glass in a remodel. Ensure you are securing your mechanic’s lien rights on every project, because the viability in the retail industry is growing weaker by the day.