Analysts Wait With Bated Breath As Troubled Brick-And-Mortar Retailers Enter A Shorter Holiday Season

This year stymied optimism in retail as hundreds of staple brands announced store closings.

U.S. retailers like J.C. Penney, Dillard's and Neiman Marcus survived the year, but what they face in the upcoming shopping season may serve as a harbinger of what is to come in 2020 and beyond for struggling brick-and-mortar stores. 

“I think [the 2019 holiday shopping season] will be a bellwether for how people look at the consumer heading into a new year," Wedbush Securities analyst Jen Redding said.

Redding covers retailer Dillard's, which is not a going concern like J.C. Penney, but Dillard's has suffered under the weight of weaker earnings and faces ongoing pressure from online competition.

There is no indication holiday traffic will automatically lift brick-and-mortar department stores from the doldrums, and this year's season is a bit trickier for retailers than past ones, so it will be more difficult for this season to buoy retailers on the cusp. 

"I think this year is going to be a little bit messy because we have a shorter holiday season," Redding said. "It hasn’t been this short since 2013. The holiday is going to start earlier this year given the condensed calendar, and it's going to be more aggressive [with discounting], and I think retailers are generally going to have to give up some margin if they want to achieve the kind of top line that they are looking for.”

Retailers will take stock in January of their health, and whether they are heading toward more store closings, or in extreme cases restructuring or bankruptcy reorganization, in 2020.

The biggest risk is not bankruptcy announcements necessarily, but rather more store closings, according to Trepp Senior Managing Director Manus Clancy. 

“January is usually a very big month for what the prospects look like," he said. "The thing to watch would be how many store closings each of these retailers announces. The early part of the year is the time they want to close stores because they don’t want to lose out on the heavy holiday sales where they capture a lot of spend. But come January, that next holiday season is another 12 months away, and they may not want to carry that expense for another 12 months."

While a handful of store closings are typical every first quarter, Clancy is on the lookout for announcements that indicate retailers are closing dozens of locations at once. If that happens in the first quarter of 2020, it could spell troubles ahead. 

One retailer that is no stranger to doom and gloom is Neiman Marcus. The retailer spent 2019 fighting its creditors and then reaching deals with them. Yet, it landed — along with J.C. Penney — on RetailDive's list of retailers possibly facing bankruptcy. 

J.C. Penney Ends 2019 On A Low Note As The Firm Aggressively Tries New Strategies. 

J.C. Penney perhaps struggled the most in 2019, with Fitch Ratings downgrading the Plano-based company's long-term issuer default rating from "B-" to "CCC+" — a change that reflects the firm's "continued market losses and declining EBITDA," according to Fitch. 

Fitch in its announcement cited the company's falling sales and execution issues as problems even though it is under new leadership and CEO Jill Soltau is trying to redirect the giant retailer. 

Soltau and J.C. Penney received some positive press last week as it unveiled a revamped store model — which it is calling Penney's — that includes a yoga studio, a video game lounge and style classes. Yet, analysts covering the new model said even if it works, the financially strapped retailer may not be able to roll out this new design to save its national footprint fast enough. 

J.C. Penney even noted in a regular Securities and Exchange Commission filing that "the value of our private brands could diminish significantly due to a number of factors, including customer perception that we have acted in an irresponsible manner in sourcing our private brand merchandise, adverse publicity about our private brand merchandise [and] our failure to maintain the quality of our private brand products."

Dillard's Is Not In The Same Dire Straits, But Analysts Are Watching It

Dillard’s reported a second-quarter net loss of $40.7M, compared to a loss of $2.9M a year ago, raising questions about whether the retailer faces tough times ahead. 

Dillard's is lifted by a stable of valuable real estate and is not as bad off as J.C. Penney. It also may benefit somewhat from data that shows an upswing in consumer spending. 

"Some of the spend churn data shows it has been less bad this quarter," Redding said. "I think that’s a positive ... I think it will be a positive for Nordstroms and maybe even Macy's. I don’t think it will be as big of a benefit for Dillards in the current quarter, but I think for most department stores it might help out a little bit.”