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Retailers seek bankruptcy as consumers stop spending amid lockdown threats

American retail companies continue to file for bankruptcy protection as uncertainty surrounding the coronavirus lockdowns continue to guarantee a grave downturn in the retail sector.

“Over a two-week span in early July, seven retailers, including The Paper Store, Brooks Brothers and Lucky Brand, filed for bankruptcy protection, says CNBC. “J.Crew, Neiman Marcus and J.C. Penney and four other retailers had already filed in May. Lord & Taylor and the off-price shop Stein Mart led another wave that hit earlier this month. Some would say it has been a flood, but what’s coming could be a tsunami.”  

S&P Global Market Intelligence says that the number of retail bankruptcies could be higher than at any time in a decade.

That shouldn’t come as a surprise as the U.S. GDP dropped by $2.15 trillion in the second quarter ending June 30. And while personal income was up thanks to COVID relief payments made by the government, consumers don’t spend money when the economic conditions and jobs are uncertain.

“The loss of tens of millions of jobs and closure of countless businesses during the early stages of the pandemic shook households to the core. The amount of money consumers spent likely fell by a record 35%,” says MarketWatch.

The decline in spending is causing Americans to sit on their money, despite stimulus payments, with a dramatic increase in savings rates from pre-pandemic rates of 7.5 percent, to savings rates of 12.6, 32.2, 24.2 and 19 percent from March to June respectively.  

As a result, the retail sector of the economy, which was already under pressure from the internet reorganization, has stumbled badly.

“43 retailers have filed for bankruptcy so far this year, including many companies saddled with debt or struggling to resonate with shoppers before the pandemic,” says CNBC.

The number of retailers seeking protection is going to increase too, say market watchers.

“I think there is a lot more to come,” said Tiger Chief Operating Officer Michael McGrail, who oversees the appraisal and disposition practices of Tiger’s retail, wholesale and commercial and industrial divisions. “It’s just like anything else. We’ve seen the first wave, where those in critical condition are getting in trouble,” says CNBC.

The bankruptcies highlight just how important confidence is for the economy.

So far, the U.S. government has responded to the pandemic with nearly $7 trillion in combined fiscal and monetary stimulus. While the injection has helped, people are still reluctant to spend money until they feel confident that they know what the government will do in the future.

Both consumers and businesses are worried about what the government might do under a second wave of coronavirus outbreaks, where a lockdown would likely see an unprecedented number of additional bankruptcies and more permanent job losses.  

PHOTO: Bruce Bennett/Getty Images

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