Coronavirus: 'There's going to be a generalized crushing of retailers in America'

Brian Sozzi
Editor-at-Large

When all is said and done, Amazon may not turn out to be the killer of some major retail chains.

Stores across the United States are currently shuttered as state governments order people to stay home and businesses to close to stop the spread of the deadly coronavirus. While retailers such as Dick’s Sporting Goods, Abercrombie & Fitch and others expect to reopen their stores in the coming weeks many experts are unsure if they will be delayed even further into May or June as infections in the U.S. continue to spike. Moreover, it’s unclear what the appetite will be for consumers to spend once stores do reopen seeing as they may have been laid off from work or are paying back debts incurred during said layoffs.

That is all a recipe for disaster for a retail sector — mostly the department store space — that continues to be saddled with excess bank debt and a burdensome number of costly leases.

“There is going to be a general crushing of retailers in America,” PJ Solomon founder and chairman Peter Solomon said on Yahoo Finance’s The Final Round. Solomon has spent decades facilitating deals and crafting restructurings in the retail space, so his call should be a major wakeup call to investors thinking about dipping their toes into the battered space.

“You will see a considerable number of bankruptcies because a number of retailers do have leverage. You cannot stop demand as we just have in the country and have these guys survive,” Solomon continued. “They pay rent. They pay interest. They pay their workers. They will have to stop paying their workers in a couple of weeks.”

However, Solomon says retailers like Walmart and Target should continue to do well. But he thinks the coronavirus “will kill” the department store space and others overloaded with debt.

Ratings agency S&P appears to be in agreement with Solomon.

Shoppers enter and take their shopping carts at a Target store in Newport, Ky. (AP Photo/John Minchillo, File)

On Monday, S&P slashed its debt ratings and credit outlooks on both Nordstrom and Kohl’s — two highly leveraged department stores — citing demand concerns stemming from the coronavirus outbreak.

“We expect the spread of the coronavirus will result in a swift and severe drop in consumer spending this year, as restrictive mandates to contain the outbreak and deflating confidence upend near-term consumer behavior,” S&P’s analysts wrote.

On Nordstrom, S&P pulled no punches in their analysis. “We believe Nordstrom’s operating results will be significantly weaker than we previously expected, pressuring credit metrics and potentially resulting in the need to amend its maximum leverage covenant,” the analysts wrote.

The commentary on Kohl’s wasn’t much better.

“Based on our revised forecast assumptions for Kohl's, we now expect profit and cash flow generation to weaken significantly and leverage to spike meaningfully in 2020,” said S&P.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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