Liquidation sales create new hurdle for bankrupt retailers: ‘We’re just limping along’

Firms that specialize in winding down stores say liquidating now is markedly different from what it was before the pandemic. Companies are offering deeper discounts to win over consumers — with sales starting at 40 percent off instead of the usual 20 percent — as well as other incentives. Even […]

Firms that specialize in winding down stores say liquidating now is markedly different from what it was before the pandemic. Companies are offering deeper discounts to win over consumers — with sales starting at 40 percent off instead of the usual 20 percent — as well as other incentives. Even then, results can be spotty: Proceeds from liquidation sales have fallen about 25 percent since the novel coronavirus took hold, according to Jim Schaye, chief executive of retail liquidation firm Eaton Hudson.

“It’s like throwing a party and having nobody come,” he said. “People are just not running out to a J.C. Penney liquidation or a Lord & Taylor liquidation like they would have in the past. Even at 60 percent off, they’re saying: ‘So what? I don’t need it so I’m not going to buy it.'”

The Gap last week announced that it would shut 200 locations, while Ascena Retail Group — the parent company of Ann Taylor, Lane Bryant and Justice — is closing nearly 1,600 stores while in bankruptcy proceedings. Department store chain Lord & Taylor is liquidating all of its stores, as are Pier 1 Imports, Modell’s, Stage Stores and New York & Co. Overall, retailers are expected to close a record 25,000 stores this year, according to Coresight Research.

The typical liquidation sale, which used to last about nine weeks, now takes about 30 percent longer, according to Michael McGrail, chief operating officer of Tiger Group, which is among the firms managing closeout sales for J.C. Penney, New York & Co. and Modell’s. There are some variations, though, based on the type of product being sold: Sporting goods, furniture and housewares tend to sell quickly, though clothing, shoes and jewelry have become more difficult to offload during the pandemic.

“For certain things, the customer does return,” he said. “Do they come back at 100 percent? No. But [the virus] isn’t enough to wipe out consumerism.”

But it has been enough to complicate matters. Millions of Americans remain out of work, and even those with jobs say they’re cutting back on discretionary items. Sales at clothing stores have declined 37 percent from a year ago, while sales of electronics, appliances, furniture and home goods have all dropped by double digits, according to the latest retail sales figures from the Commerce Department.

As a result, liquidation firms say they’ve changed the way deals are structured. Instead of paying retailers for their inventory upfront, as has long been the norm, they have shifted to a fee-based model where the retailer gets a portion of the proceeds after the sale is complete. The pandemic also has forced them to take on new tasks, such as ordering protective equipment for workers, and hiring and training workers to staff stores.

Many workers are hesitant to come back to work temporarily — especially if they’re already furloughed and collecting unemployment benefits — while others are dropping out of the workforce because of health and safety concerns, said Ian Fredericks, executive vice president of the retail group at Hilco Merchant Resources. The company has recruited and trained hundreds of workers to fill in during pandemic liquidations, he said.

“It’s not something we’ve typically done, but we’re doing it more and more now because there just isn’t enough store staff to help customers during the day,” he said. “When one project is over, we can usually send them to another project in the same area.”

Specialty apparel, like men’s suits, has been particularly difficult to sell, even at half price, he said. There have been other challenges, too: “People aren’t necessarily walking around, looking to browse,” Fredericks said. “If they are going to the mall, it’s because they have [a] specific need in mind — and specialty apparel just isn’t it.”

And although Americans are doing more of their shopping online, liquidation sales haven’t quite followed. Many of the retailers shutting down have antiquated websites that can’t handle major sales or buy-online, pick-up-in-store options, McGrail said. Or, if a retailer does have a booming online presence, it often doesn’t want to tarnish its reputation — or a chance at finding a buyer for its e-commerce operations — by offering deep discounts online.

“There is so much uncertainty: You could start a liquidation, and suddenly the mall closes down or there’s another shutdown,” Schaye said. “It’s a constant struggle, so we’re just limping along.”

Employees at a Catherines store in Parkersburg, W.Va., were notified in late July that parent company Ascena had filed for bankruptcy and was shutting down the apparel chain. They immediately began marking down inventory — 40 percent off at first, then as much as 95 percent off. Jeans that originally cost $60 were discounted to $3; pantyhose fell from $17 to 79 cents.

But selling off a store mid-pandemic comes with other considerations: Only five shoppers were allowed in at a time, and employees were required to wipe down registers after each transaction. Fitting rooms were off-limits — which prompted some shoppers to try on tops and pants on the sales floor, according to Lyndsey Fought, 35, who worked part time at the store until it closed in late August.

“To be honest, we just wanted to get it over with,” she said. “We were dealing with the sadness of losing our jobs after having been furloughed 2½ months. And then to be closing down the store? It wasn’t the greatest feeling.”

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