It seems like the summer of 2020 is the summer of major retail chain closings. Just recently, Lord & Taylor announced it's permanently closing all of its stores, much to the chagrin of its loyal customers. And now, another department store chain is following suit.
Century 21, a chain popular among bargain hunters, has filed for bankruptcy and announced that it will be shutting down operations. Century 21 has 13 stores, mostly located in New York City and the surrounding metro area, including New Jersey and Pennsylvania. It also has a location in Florida.
A troubling trend
The Century 21 bankruptcy isn't all that shocking, given the way department stores have been failing in the wake of the COVID-19 pandemic. Earlier this year, J.C. Penney (OTC: JCPN.Q) and Neiman Marcus each filed for Chapter 11 bankruptcy protection, and they were joined by dozens of retailers who took a hard hit when store closures stripped them of much-needed revenue.
Of course, business was sluggish for Century 21 before the pandemic took hold, and the same holds true for a number of department store chains. But given that Century 21 stores focus on clothing sales, business fell off a cliff as stay-at-home orders forced potential customers to keep away, and ongoing social distancing practices have made the need for new clothing less pressing.
But lost revenue wasn't the only factor leading Century 21 to bankruptcy. The company said it also didn't receive the $175 million in insurance money it claimed under its business interruption plan. Years ago, Century 21 filed a similar claim when the September 11 terrorist attacks impacted its business; the retailer had a large store in lower Manhattan right across the street from the World Trade Center. Back then, its insurance money came through. But business interruption coverage doesn't always pay out for pandemics, which was the case this time around. In the absence of that payout, the beloved family business feels it has no choice but to shut down its stores for good.
A bad sign for real estate investors
Losing Century 21 is yet another blow at a time when real estate investors are already in a panic about store closures. Though Century 21 doesn't have the same mall presence as J.C. Penney (which, incidentally, may be able to keep its stores open thanks to a recent deal), there are several Century 21 stores in malls in the New York City area, and losing another major player could drive shopping centers closer to extinction.
Though store closures are generally troubling for malls, department store closures are a much bigger deal, as these businesses draw in customers and also pay for a lot of square footage in rent. While losing Century 21 won't have the same nationwide impact as other department store closures, real estate investors should still be worried that things on the retail front could get a lot worse in the not-so-distant future.