How COVID-19 is accelerating the demise of these retailers

According to Coresight Research, as many as 25,000 retail stores could permanently close in 2020. The report comes on the heels of big-box retailer Macy’s warning investors of a ‘gradual’ recovery ahead, while Men’s Wearhouse parent company Tailored Brands is reportedly weighing a bankruptcy filing. The Final Round panel discusses.

Video Transcript

MYLES UDLAND: Let's turn now to what's going on over at Macy's. A lot of news on the company in the last 24 hours. The stock right now is down about 6 and 1/2% in today's session earlier. It had been up significantly. Stock at one point actually traded almost at $10.50 a share right now. You see it sitting just below $9 a share.

So the company came out with some preliminary results. Sales off sharply, down about 40%. $3 billion in sales during the first quarter. The net loss right around $1 billion. Now, the company borrowed an additional $4 and 1/2 billion. So firming up liquidity there, I think the market was excited about that for a bit. But the company's CFO said that they just don't see a return to what they're calling normalized trends until potentially 2022.

Now, Seana, I think in this environment if a company that's a Macy's in this environment can say, well, we're not yet considering a bankruptcy filing, I guess that's a win. But certainly there is a long way to go here for Macy's to just stabilize the business.

SEANA SMITH: Yeah, I think that's exactly right, Myles. I mean, if you take a look at the stock shares, we're off-- what-- just over 40% so far this year before today's move. So clearly this is a company that we've been talking about now for quite some time that needs to make some structural changes in order to keep up with the changing trends that we're seeing from consumers.

And I think we've talked about this in a few other instances. But if you look at retail, I think this does go with what we are seeing. That's just the fact that the coronavirus pandemic has accelerated some of these industry challenges that they had already been facing. We talked about the fact that stores were already closing in large numbers.

A recent number that we've just gotten from Coresight Research now saying that they expect 25,000 stores are predicted to close at just this year alone. So I think Macy's, along with a lot of the other department stores, need to adjust their business model and really spend more of that focusing on their e-commerce business on online because that's really where the future is. And that's where we're seeing more and more customers want to spend their money.

It's interesting. We've talked about this a few times in the past, the couple of our guests. And I've talked about it with Jerry Storch. He's the former vice chair of Target. He's also was the CEO of Toys "R" Us and Hudson's Bay in the past. And he's been emphasizing the fact that there are clear winners and losers in the retail space. And you don't have to look any further than some of the department stores.

The department stores that aren't changing their business models-- those have been at risk. They remain at risk. And I think coronavirus is almost exposing some of the biggest challenges that they do face within the space in the short term.

MELODY HAHM: And Seana, of course, some of those who had previously been bullish on Macy's maybe because of that announcement back in February if you recall. Macy's announced that three-year business strategy called Polaris. It was a five-pronged approach after the closure of stores, after an estimated 2,000 employee layoffs. And then COVID hit, right?

So just thinking about even without forced mandated store closures, that was an existing, as you mentioned, kind of secular trend, not only for Macy's, but for all stores that rely heavily on malls and that kind of foot traffic. This is a clear decline. I just want to recall too, even a couple of years ago, Macys.com was still the number one destination for apparel. As I understand it, they've been dethroned by Amazon just because Amazon has become the one stop shop.

But it just shows that people did count on Macys.com and Bloomingdales.com to actually purchase clothing, right? But in the CFO's comments today she rightfully pointed out that no one needs to buy women's dresses anymore. People are not buying blazers. People are not buying ties, which when you think of Macy's, that's the destination, right?

You don't go there for comfy clothes or any of the apparel that we've been supporting over the last couple of months. So I think, not only that initial restructuring plan and that turnaround strategy, that was actually heralded as something that could be, you know, people could be optimistic about at the time. I think that it's just very unfortunate timing for Macy's which had been trying to re-implement a new strategy.

MYLES UDLAND: Yeah, now, companies that appear to be running out of time to figure out new strategies and make things work-- that would be Tailored Brands. They own JoS. A. Bank, as well, as Men's Wearhouse. There was a report last night from Bloomberg that the company was exploring a bankruptcy filing. Now, this initially led to a spike in the stock price. But now shares are down about 16% today-- $1.40 per share.

And Dan Roberts, Melody mentions secular trends. And OK, maybe work from home isn't the future of everything. But I do kind of think that wearing suits has been on the way out and is probably over as over as it's ever going to be when all this is said and done.

DAN ROBERTS: Well, yes, you know, just like JC Penney and just like J.Crew, as we've discussed on this show, here's another company that was struggling before coronavirus came along. And then quarantine hit it like a ton of bricks, because no one is going to the office. No one is wearing suits right now. And even on the Zoom calls, no one's wearing a suit.

To your point, I haven't worn a suit this whole time. But even a few months before a quarantine happened, I don't think I've worn a suit. I know you, Myles, haven't worn a full suit in a while, maybe even over a year, right? I mean, when was the last time? AMS, our Yahoo Finance--

MYLES UDLAND: Was that [INAUDIBLE]? It was at your wedding.

DAN ROBERTS: There you go. You know, frequently, guys like you and me, even on camera, we'll wear dark dress pants and a blazer. But a full suit is just something that I think for a lot of young workers-- young people in the workforce-- was kind of already out of fashion. Now, maybe, you know, banks are an exception-- Goldman guys.

But our Editor-in-Chief Andy Serwer wrote a column at "Fortune" years ago already-- years ago that said that the necktie is dead. And I remember I didn't quite agree with that then. I think a tie is still cool occasionally. But point being, these were two companies, by the way-- Joseph A. Bank and Men's Wearhouse-- which even when they merged back in 2014, people said, wait a minute. One company that's already struggling on its way out wants to buy up another company that's struggling on its way out?

So, of course, I put it in our slack room recently. But the famous "SNL" skit that I love so much about JoS. A. Bank suits where they use them as paper towels to clean up spills because it's practically pennies. It's buy one suit, get three free. So, again, these are companies that I think had tough prospects even before America went through now-- what-- three or four months when no one was going into an office, and no one was wearing suits, and no one was on Wall Street-- tough to come back.

Now, of course, that stock bump predictable. And as we've discussed, the Robinhood thing with young investors suddenly realizing, ooh, a bankruptcy filing might mean it's a good time to buy the stock. But just a tough time for these companies. And one more point-- they overbuilt. I mean, they're JoS. A. Bank stores all over the place. I think that like many retail chains, they overbuilt.