DJ Many Retailers Are Closing. That's Good for Survivors. -- Barrons.com

By Teresa Rivas

More than two dozen retailers have gone bankrupt this year, as the Covid-19 pandemic has ripped through the industry. Yet that could be good for the survivors, says Yardeni Research.

Even after the large number of bankruptcies in recent years, Barron's has argued that the U.S. still has too many stores. Ed Yardeni writes that perhaps with this most recent wave of bankruptcies, we might reach a point where the excess is finally taken out of the system and "the remaining players have a fighting chance at survival."

Macy's (ticker: M) addressed this issue during its most recent conference call, noting that it could pick up customers as peers struggle. (Earlier this week, the troubled J.C. Penney (JCPNQ) said it would sell itself to its landlords.) Department stores and others have seen a bit of a rebound in sales, perhaps hinting at equilibrium to come, Yardeni notes. "After years of online sales taking market share, some of the brick-and-mortar retailers may be holding their own, helped by the push to offer online purchases that can be delivered to doorsteps or picked up in stores."

As the pandemic has exacerbated the pain that many weaker retailers were already feeling, it shouldn't surprise investors that -- even after years of headlines about a retail apocalypse -- companies are closing stores at an even faster clip in 2020.

Yet Yardeni notes that even mall survivors from Gap (GPS) to Victoria's Secret parent L Brands (LB) are also trimming their store base. Barron's has reported before that the pandemic is a way for retailers to shrink their footprint to a more rational level without the negative press that might have accompanied this necessary move in more normal times. If this all leads to fewer, healthier stores, that could be good news for those that remain.

That said, investors still need to be cognizant that plenty of pain remains in the sector. Apparel-focused retailers especially have had a bad year (as working, learning, and playing at home has shifted shoppers' spending away from clothing, with a few notable exceptions). Revenue for the department store group is expected to fall nearly 20% this year, with analysts predicting steep losses for the companies.

So while better times may be ahead in a less crowded retail landscape, it won't be a smooth ride to get there.

Write to Teresa Rivas at teresa.rivas@barrons.com

(END) Dow Jones Newswires

September 10, 2020 11:10 ET (15:10 GMT)

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