The coronavirus pandemic has driven numerous retailers into bankruptcy, and that generally hasn't been good news for real estate investors. While a bankruptcy filing doesn't always lead to store closures, it can. And at a time when commercial landlords across the country are grappling with vacancies, the word "bankruptcy" can trigger some pretty negative thoughts.
In early September, famed New York City retailer ABC Carpet & Home filed for bankruptcy. But in this case, there are several reasons why the news isn't all bad.
Why investors don't need to panic
New York City has been exceptionally hard-hit by the pandemic. Early on in the outbreak, the city was declared the outbreak’s epicenter, and both residential and commercial landlords have had to grapple with sky-high vacancy rates. Meanwhile, many New York City retailers have seen their revenue decline since the crisis began. And during the pandemic, ABC fell behind in its rent by more than $1 million.
But the news on ABC isn't as negative as it might seem. For one thing, there are already investors on hand to bail the legendary retailer out of its financial distress. As of its filing, ABC had assets worth up to $50 million and as much as $100 million in liabilities. The store plans to continue operations while the bankruptcy process plays out. Talks of closures aren't on the table.
Furthermore, the reason ABC wound up filing for bankruptcy is actually good for real estate investors. ABC is a purveyor of luxury home goods -- think high-end rugs, accent pieces, and decor. Most of ABC's products run from several hundred dollars to the $1,000 mark. Therefore, they're not the sort of items consumers might buy on a whim or without seeing them in person.
This has been ABC's disadvantage during the pandemic. At a time when other retailers were able to more seamlessly shift to e-commerce, ABC has not had the same success. After all, it's doubtful that someone would be willing to drop $1,400 on a single vase or picture frame without coming into the store and seeing what that item looks like.
But while ABC may have been hurt by the pandemic, its need to retain a physical presence should give real estate investors comfort, because it shores up the idea that e-commerce cannot take the place of brick-and-mortar stores. For years, even before the pandemic, real estate investors have feared that a boom in digital sales would drive more stores into extinction, leaving commercial landlords with an impossibly large number of vacancies and forcing malls further into distress.
ABC's recent woes only drive home the message that e-commerce has its limitations. And that fact could be the very thing that prevents a full-blown retail apocalypse.
At this point, ABC is a New York City institution. Founded in the 1800s by Samuel Weinrib, an Austrian immigrant, the business started with a pushcart on Manhattan's Lower East Side. It then evolved into a high-end home goods hub.
ABC's flagship store is located in Manhattan's Flatiron District, and it also maintains an outlet store in Brooklyn. Once it emerges from bankruptcy, it will, ideally, continue to welcome its usual array of customers, only with a smaller debt load holding it back.