Former Toys "R" Us CEO on which retailers will survive the COVID-19 pandemic

Former Chairman & CEO of Toys 'R' Us and current CEO of Storch Advisors Jerry Storch joins Yahoo FInance’s Seana Smith to discuss the worse than expected drop in April’s retail sales and which sectors have been especially hard.

Video Transcript

SEANA SMITH: Welcome back to "The Ticker" here on Yahoo Finance. Retail sales taking a dive in the month of April, falling more than 16% as the lockdown led to a record drop in those sales. For more on this, I want to bring in Jerry Storch of Storch Advisors. He's also the former CEO of Toys 'R' Us and HBC. And, Jerry, thanks so much for taking the time to join the show again.

Let's talk about this number that we got this morning. You said April retail sales were going to be horrible. We saw that more than 16% drop in the month of April. I guess my big question to you is did you think it was going to be this bad?

JERRY STORCH: Actually, I did. Keep in mind that April was the first month when we had the shelter-in-place orders or the stay-at-home orders in place for the entire month, and also consumers were scared to go out. So that's what happens when you close the stores. You don't get sales, and there's no way the internet sales can make up for it.

So you might be more surprised that there were still 84% of the sales that did happen, you know, that there were still that much activity taking place given the environment that we're in.

SEANA SMITH: And talking about the sales that were taking place, a lot of that had to do with the jump in e-commerce. A recent Adobe report showed that e-commerce sales jumped by almost 50%. When we take a look at that, I guess what names do you think are best positioned in this pace-- in this space, and also is the coronavirus kind of triggering or accelerating some of the changes and trends that we were already seeing before the outbreak?

JERRY STORCH: Sure. Well, look, this was all happening before, as you alluded to. The internet was growing rapidly and taking share. Mall-based retailers were losing. Department stores were losing badly. Apparel was losing to hardlines, and the mass merchants were winning.

What this has done is accelerate all those trends. So this is the first month, when you look at the report, when the internet-- when e-commerce sales exceeded 20% of retail sales. So that's phenomenal growth. It's been down to kind of 11%, 12% for some time-- and, you know, of course growing very rapidly, picking up a point or two a year, but picked up a huge amount during this period.

Other big winners are the mass merchants like Walmart and Target, Costco, who sell both necessities as well as everything, but they were open. And so they also have good internet arms. I would say if you don't shop amazon.com, you shop walmart.com. And so--

SEANA SMITH: Yeah.

JERRY STORCH: --that's the number two. So they certainly grew a lot during this period.

And Dollar General is another important name to follow because, on the value side, they are kind of the Walmart in many small communities around the country, and they did great in this environment, and I think they're going to continue to [? grow ?] as well.

The mall-based apparel stores and department stores, they're in big trouble. Apparel-- and I think the biggest number here was the glaring 89% reduction year over year in apparel sales. So those did not hold up in any way, shape, or form. And basically we're not going anywhere. We don't need to get dressed up for it, and that's what we saw there.

SEANA SMITH: Yeah, Jerry, I think that is the line of thinking of a lot of Americans these days.

I want to talk about some of the retailers that are struggling, to say the least, and specifically focused on those bankruptcies, the reports that we got this. So first we had J.Crew file for bankruptcy, then Neiman Marcus today. Reports that JCPenney is exploring bankruptcy. I guess my question to you is is this a trend that you think will continue within this sector, and what are some of the names that you think are on the brink of bankruptcy at this point?

JERRY STORCH: Well, I think it is going to continue. And, you know, JCPenney, everyone knows, is just sort of tottering right there or teetering. They made an interest payment today, so I guess it's not happening right away, but it's going to happen soon. Everyone knows that. They're not going be able to-- they're just negotiating to get a better deal for when they go into into bankruptcy.

I think Ascena is in big trouble and won't be able to make it through this. I think there will be many more as we look to the future.

With Neiman Marcus with that chapter 11, I think it's very likely they're going to end up finally married to Saks. You know, that's something-- they've been star-crossed lovers for years, and there's really not room in the country for both of them. And so that would be a rationalizing outcome that seems quite possible for the first time in a long time in this environment.

SEANA SMITH: Jerry, do you have confidence that the retail economy is going to come back strong, and what do you think the timeline is for the potential rebound?

JERRY STORCH: Well, you could look at it a couple ways. First of all, I think it's going to lead us back. I think it's going to drive us back. But as people start to creep out of their holes and their shells and head out into the malls, everyone's going to watch very carefully what happens with infection rates and deaths. And, you know, it's terrible things to talk about, but we're going to watch it very carefully.

And if they're kind of OK, then I think more people will come out, and we'll see more of a reopening of the economy. If they start to spike again, people are going to go right back in, and it's going to take longer.

I don't think we're really going to get back to where we were until the fall of next year. It will be quite-- but it doesn't mean that we can't do a lot better than what we saw in April.

SEANA SMITH: All right, Terry Storch of Storch Advisors, also former CEO of Toys 'R' Us and HBC, we love having you on the show. Thanks so much for taking the time.

JERRY STORCH: Thank you.