Will COVID-19 Mark The End Of Department Stores?

Already proven to have had quite the start, 2020 is looking tougher by day. In fact, five months into the new year, the Australian fires, Brexit and now the pandemic have put a strain on the fashion industry – one many creative aren’t sure how to recover from. Now, department stores are struggling more than ever, and some have been forced to file for bankruptcy.

New data from IMRG shows that, although e-commerce continued to rise during April and managing to rise to 22% during its first week in the UK, this is marginally down on the previous week where sales had increased 23.7% year on year. In particular, the clothing industry alone saw online sales drop 20% year on year.

E-commerce has, of course, been department stores’ most significant competition for years and now, it is clear this pandemic might lessen their chances of survival within the industry. According to a recent study conducted by Alvarez & Marsal, half of UK retailers could be wiped out if coronavirus continues with sales forecasted to have dropped as much as 70% since the lockdown. 

In the UK alone, Debenhams appointed administrators in the hopes this will salvage as many of its UK stores as possible, even though the 11 stores in Ireland are expected to shut for good. Oasis and Warehouse have also announced they are heading into administration, a decision that will lead to immediate job losses for 200 staff and an additional 1,800 staff being furloughed. TK Maxx and Net A Porter have taken the decision to indefinitely suspend e-commerce operations, while Next decided to shut down online transactions in a bid to protect warehouse staff. 

In the US, True Religion filed for Chapter 11 bankruptcy protection on April 13, quickly followed by high-end retailer Neiman Marcus – making it the first major department store group to file for bankruptcy during COVID-19. In a letter, Chairman & Chief Executive Officer Geoffroy van Raemdonck explained: “This is not a liquidation of our business. This is simply a process that allows our Company to alleviate debt, access additional capital to run the business during these challenging times, and emerge a stronger company with the ability to better serve you and continue our transformation over the long term.”

Its subsidiary, Bergdorf Goodman has also filed for Chapter 11 bankruptcy protection, a move that will substantially reduce their debt and provide them access to a significant amount of financing to ensure business continuity.

Up until a couple of months ago, the challenge for most departments stores has been adapting to the idea of e-commerce. Now, the will most likely be a continued advancement of e-commerce, something that will provide further disadvantages to department stores. Although we’re still all swimming in uncertain waters, one thing is for sure: department stores will have to step up their game to come out of the slump and stand a chance against online-only brands and luxury retailers.

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