Even stronger retail players, from Mall of America to Edina's Evereve, are strained

Retail was already in the midst of a major upheaval before the coronavirus pandemic. Department stores were fighting to remain relevant. Debt-laden retailers were struggling to stay above water. And malls were trying to adjust by diversifying.

Now the stay-at-home orders closing many stores and malls have only intensified bad balance sheets and led consumers to shift, perhaps permanently, more of their shopping online.

"It's … ripping the Band-Aid off and now some of them are going to teeter faster," said Mickey Chadha, an analyst at Moody's. "There is going to be a lot of pain."

J. Crew and Neiman Marcus both declared bankruptcy in recent days, the first of many defaults and store closures analysts expect to see in the coming months.

But even the stronger players are feeling strain.

"It's definitely a challenge," said Jill Renslow, an executive vice president at the Mall of America. "We're at the intersection of not only retail, but entertainment, hospitality and travel, which are all industries that have been hit really hard."

While MOA is in a category of its own, also attracting travelers from around the world, it depends on many of the same stores as other malls in the Twin Cities. And those department stores and mall-based clothing stores are widely viewed as the most vulnerable since they were hurting before the pandemic.

Green Street Advisors predicts that more than half of all mall-based department stores will close by the end of 2021, hastening the demise of many second- and third-tier shopping malls that have been limping along for years.

The Mall of America has furloughed about 90% of its 900 employees while keeping some security, maintenance, housekeeping and groundskeeping staff intact. It is also exploring what type of state and federal aid might help it weather the closure.

"The rent coming from retailers is not what it was before COVID," said Renslow, calling payments "minimal." Like other malls, MOA has had to negotiate with tenants on rent deferrals and other payment plans so the stores can stay afloat.

"We have mortgage payments and tax payments just like other businesses," she added.

The rent forbearance for retailers won't last forever, said Bruce Nustad, president of the Minnesota Retailers Association.

"We look at the next two to four weeks as being a little bit of a watershed moment in terms of expenses coming due," he said, nodding also to utility bills and sales tax payments, which were extended by 30 days. "You can only delay those things for so long."

Like many fellow retailers, Plymouth-based Christopher & Banks has negotiated with landlords, furloughed nearly all its employees and canceled orders with vendors. It also suspended $3 million in capital expenditures.

Christopher & Banks was already struggling before the pandemic, having been ranked in late February as the nation's No. 1 apparel chain most vulnerable to default by analysts at S&P Global Market Intelligence. While still unprofitable, the chain had been showing some progress from a turnaround effort before the stay-at-home orders.

Now the chain, which caters to a loyal base of baby boomer women, is faced with trying to rebuild momentum at its 445 stores from a flat-footed start, evaluating a new set of expectations and buying habits from its customers developed during the pandemic.

"This crisis is going to precipitate a drop out of retailers in a way we haven't seen to date," said Neil Saunders, an analyst with GlobalData Retail. "It's going to accelerate the demise of many weak retailers. And it's going to be painful because it will be concentrated in a short period of time."

Analysts expect that stronger players will also reconsider if they need as many stores as they did before with more shopping shifting online.

U.S. retail sales recorded their biggest decline ever in March as nonessential retailers closed up shop in the middle of that month. Sales in April and May are expected to be even worse.

While apparel sales have dropped off a cliff, sales at "essential" retailers such as grocery stores, Walmart, Costco and Target — as well as Amazon — have surged as consumers have stocked up on food and household supplies. These retailers are widely considered to be better positioned as the economy opens back up, even while their profits might plunge from the higher costs to fulfill online orders and increased hazard pay for workers.

Brian Cornell, CEO of Minneapolis-based Target, said the pandemic will only magnify the differences between healthy retailers and those with big financial troubles. That means more opportunities for Target to gain market share across many categories including apparel and home.

"That will be a benefit for us, but unfortunately, it will come at the expense of others who are closing their doors and potentially no longer operating in this future environment," he said.

As they cross their fingers, retailers are drawing up plans and starting to dip their toes into reopening stores in some states. Richfield-based Best Buy, which pivoted to curbside pickup in late March, has reopened 200 stores this month for visits by appointment.

Edina-based Evereve, a women's clothing company with 90 stores in 28 states, began offering curbside pickup at most of its Twin Cities locations last week as Minnesota allowed retailers to begin operating that way.

Evereve plans to reopen 20 stores on Monday in other states that allow it, but will do so with new safety protocols that include face masks, which will be required for employees and encouraged for customers, said Mike Tamte, the retailer's co-CEO.

Stores will be open for shortened hours, have contactless payment and e-mail receipts. They also will let returns sit untouched for 24 hours and items tried on in the dressing rooms won't be put back on the sales floor until the next day.

Evereve is in better financial shape than many retailers, with a debt-free balance sheet. It went into the pandemic with $20 million in cash, but has already spent $6 million of that, a large portion of it on payroll, before it furloughed employees. Now it's losing $100,000 to $200,000 a week.

But even when stores reopen, Tamte expect sales will be sluggish for many months and has forecast revenue to be down 30% through the end of the year.

"We hope we're wrong, but right now that's our best guess," he said.

With unemployment at the highest level since the Great Depression, retailers are wondering when consumers will want to start spending — and when they will want to go back to stores — for nonessential, discretionary items.

"We know there are many people who are stir crazy," said Renslow, of the Mall of America. "And we hear from our customers all of the time on social media that they're excited to come back and can't wait for us to reopen. But there's a sector of the population that is definitely going to be a little more hesitant and has some anxiety about coming back into public settings such as malls and entertainment venues."

The mall will likely reopen in phases when it gets the green light from the governor's office to do so. New safety protocols will include plexiglass barriers at guest services and in food courts; designated doors for entering and exiting the mall; and social distancing markers on floors near digital directories. The mall is also evaluating each attraction in Nickelodeon Universe, weighing whether to require visitors to wear masks on certain rides.

Mall leaders also will focus short term on the local market since tourists are unlikely to resume flying in this year. MOA has launched a new curbside pickup service and it is exploring ideas such as a virtual shopping assistant to help shop its stores online.

And they are already thinking about how holiday shopping will change this year.

"We're looking at what is the Santa experience going to look like? What is Black Friday going to look like?" Renslow said. "We have to plan for the future."

Staff writer Jackie Crosby contributed to this report.