This article was never published in The Eye of the Hurricane and is unfinished and unedited. It was planned to have been released on May 27, 2020, but was indefinitely delayed in solidarity with the protestors of the death of George Floyd.
The COVID-19 pandemic has undoubtedly caused the United States’ economy to collapse. Dozens of millions of Americans have filed for unemployment in the last few months, reaching a level of 14.7% at the time of writing this article. The United States has not seen an unemployment rate this low since the Great Depression. At the beginning of the pandemic in America back in late February through late March, the Dow Jones Industrial Average fell by about 11,000 points or 37 percent. On March 16, the DJI dropped by almost 3,000 points, obliterating the previous record set just days earlier. Since then the market has resurged, but only gaining about half of the points back that it lost. It had its largest daily point gain of all time on March 24, gaining over 2,100 points alone.
Now, this pandemic has undoubtedly taken its toll on businesses in the United States: both small businesses and large corporations. Some businesses have barely had to change anything due to COVID-19, mostly consisting of restaurants. However, retail and travel companies are taking a huge hit due to the novel coronavirus. Many of these are names that are relatively iconic to the industry they are in. Kiplinger reported on May 22 that fourteen major companies have filed for bankruptcy due to COVID-19, with numerous others likely.
I have previously written articles about businesses filing for bankruptcy, including “Why Are So Many Retail Chains Going Out Of Business“, which I wrote in 2018. In order to understand what these companies are doing, you must first know the differences between the three different types of bankruptcy protection a company can file. Chapter 7 bankruptcy is what companies and individuals can file for whenever they need to clear away unsecured debts, which will lead you into giving up possessions and will negatively impact your credit score. Chapter 11 bankruptcy involves a reorganization of a business’s debts and assets, which allows them to restructure the company and give it a fresh start. Chapter 13 bankruptcy is the same as Chapter 11 bankruptcy protection, except for individuals instead of corporations.
The first company that was forced to file for Chapter 11 bankruptcy protection was Pier 1 Imports way back on February 17. The already struggling company was forced into closure due to COVID-19 and announced that it was liquidating all of its 540 stores on May 19.
The next company forced to file for bankruptcy was Michigan-based furniture retailer Art Van Furniture, with 190 locations and over 3000 employees. It has been struggling for years, preparing for liquidation last year. They filed for Chapter 11 bankruptcy on March 5th, but very shortly after filed for Chapter 7 bankruptcy and began liquidating its stores.
The next company was also under extreme financial pressure before this year, and that is Colorado-based Whiting Petroleum. Last year, they lost $240 million in net income and were forced to file for Chapter 11 bankruptcy protection on April 1st due to the Russian-Saudi Arabian Oil Price War and the reduction in oil demand due to COVID-19. The pricing war between the two oil powerhouses caused the price per barrel of crude oil to dip to $-37.63, meaning they would pay refineries to take their oil instead.
The first travel-related bankruptcy filing was by Apex Parks Group, headquartered in Aliso Viejo, California on April 8. The company owns two water parks and 10 “family entertainment centers”, but was forced to file for Chapter 11 bankruptcy protection due to the disruption of Spring Breaks. A private equity firm purchased the company for just $45 million and expects to reopen its parks eventually.
April 11 saw the first restaurant-related bankruptcy protection filing with FoodFirst Global Restaurants filing for Chapter 11 bankruptcy protection. The company has over 92 locations and 6000 employees and is the parent company of Italian-themed restaurants Bravo and Brio. They expect to close some restaurants as the leases expire this year.
On April 13, high-end jean manufacturer True Religion was forced to file for Chapter 11 bankruptcy, which is the second time they’ve done so since 2017. Their sales have been hit by slower spending at department stores, which eliminated 80% of their revenue.
Diamond Offshore Drilling, which operated 15 drilling rigs in the Gulf of Mexico, was forced to file for Chapter 11 bankruptcy protection on April 26. It’s the second company hit hard by the Russian-Saudi Arabian Oil Price War and the reduction in oil demand due to COVID-19. For more information on the effects of COVID-19 on offshore drilling, feel free to watch this interesting YouTube video by Wendover Productions by clicking here.
May 4th saw the filing of bankruptcy by two rather iconic brands, J.Crew and Gold’s Gym. J.Crew, which is a brand of apparel, particularly specializing in men’s suits, was forced to file for Chapter 11 bankruptcy but expects to come back once their stores can reopen. Gold’s Gym is the first major company specializing in exercise and gyms that was forced to file for bankruptcy. The company said that it wasn’t struggling prior to the pandemic, and says that the pandemic forcing gyms to close is the only factor in their bankruptcy. They expect to close 30 of their over 700 gyms due to COVID-19.
May 7th also saw two major chains filing for bankruptcy: Souplantation and Neiman Marcus. Souplantation operated nearly 100 locations under two brands: Souplantation and Sweet Tomatoes. The San Diego-based chain was forced to close all of its salad-and-soup buffet restaurants permanently amid concerns that new federal guidelines will prohibit self-serve stations. (This place was actually pretty good, by the way. I went to one in Henderson, Nevada last year.) Neiman Marcus is considered an iconic luxury chain, which was forced to file for Chapter 11 bankruptcy protection due to their stores being closed and $5 billion in debt. They are expected to reopen, shedding about $4 billion of that debt.
Stage Stores, which operated 786 stores under the separate brands Stage Stores, Bealls, Palais Royal, Peebles, Gordman’s, and Goody’s, filed for Chapter 11 bankruptcy on May 11. They struggled pretty hard from the last holiday season and failed to find a buyer. The company just recently began its conversion of Peebles stores into Gordman’s stores, including ones in New Castle and Ellwood City.
Intelsat is probably the most unique of all businesses that have filed for bankruptcy, which filed on May 13. They help cable providers broadcast content to customers and operate 50 satellites. They need to meet new FCC deadlines and be eligible to receive nearly $5 billion in payments, but to do so they need to spend over $1 billion.
Our next major brand is JCPenney, which filed for Chapter 11 bankruptcy on May 15. The company has had a decline in sales for years and expects to close 242 of its 850 locations by the end of the year. This is likely going to include at least one local location, which I predict is going to be their location at the failing Shenango Valley Mall.
The most recent company that has been forced to file for bankruptcy was car-rental chain Hertz. They filed for it on May 23 after being forced to lay off 16,000 employees and were soon after criticized by Forbes for paying their CEO over $9 million. The company has about $19 billion in debt and over 700,000 vehicles that have been forced to idle due to the coronavirus.
It is undoubted that this pandemic will not only have a current effect on the economy, but also long in the future.