The imminent devastation of U.S. retail is just beginning to be revealed by the Bankruptcy of J. Crew.
J. Crew and its affiliated companies have approximately 500 retail outlets throughout the country. These store-front operations employ thousands of people. Unfortunately, J. Crew is not suffering alone. According to the National Retail Federation, there are 3,700,000 retail establishments in the United States. Those companies range from very small to giants like Macy’s and Nordstrom’s. They all have one thing in common: They are all running out of cash rapidly.
But it is not just about the retail establishments. It is about so much more. It is about the cities and states that will no longer receive the retail sales taxes that they desperately need to provide public services. It is about the mall owners that can no longer pay their real estate mortgages. It is about the construction workers that build these locations. It is about the light fixture manufacturers, the lumber suppliers, the steel manufacturers and the accountant and lawyers that support these businesses. Failing retailers like J. Crew will begin a chain reaction that will impact all other aspects of the American economy.
At first, you will notice some empty stores. Your kids will suggest that they are having trouble finding part-time jobs. Next, you’ll hear your husband telling you they are laying off some workers at his company and, finally, the manufacturers and raw material suppliers will reduce their production. It will take many months before the full impact of the retail store closures is felt, creating a series of repeating economic downturns and rising unemployment.
According to the American Bankruptcy Institute, bankruptcy filings increased 18 percent in the month of April. Law360 reports that a number of major law firms such as Hogen and Lovell are now cross-training lawyers in anticipation of a flood of bankruptcy filings later this year. Several companies, including Microsoft, Berkshire Hathaway, Alphabet and Apple, are sitting on more than $100 billion of cash. That is not the case for hundreds of thousands of other businesses. According to a 2016 study by J.P. Morgan, most businesses are now down to less than 20 days of working capital. Once that cash runs out, the companies will have no choice other than to pursue bankruptcy protection.
Richard Lawless is a career banker and entrepreneur who spent three years investigating the Department of Justice while working with the FBI, U.S. Attorneys, Securities and Exchange Commission and U.S. intelligence agencies. He is author of Capitol Hill’s Criminal Underground.
