It's a sad day for tween shoppers: Ascena Retail Group (OTCMKTS: ASNAQ), which filed for bankruptcy earlier this year, announced its Justice stores will all close down by early 2021. All told, 108 stores soon will be gone from malls and shopping centers. Some of those closures, however, will happen even sooner.
Another retailer bites the dust
Earlier in the week, Ascena said that Justice Brand Holdings LLC, an entity formed by Manhattan-based brand management company Bluestar Alliance LLC, had submitted a winning auction bid of $90 million to buy the intellectual property and specific assets of Justice. As part of that process, all stores will be shuttering in the next few months. But Ascena was planning to close Justice stores before the Bluestar deal came through.
Though Ascena, like many retailers, had been struggling for years, it was the coronavirus pandemic that really did it in. Justice in particular is a shopping destination, and having to temporarily shutter when the outbreak struck certainly didn't do the retailer any favors.
More bad news for real estate investors
Justice isn't the first retail chain to close down permanently because of the pandemic, and it likely won't be the last. But it still leaves real estate investors in a pretty bad spot.
Losing Justice as a tenant is apt to hurt malls and shopping centers that, up until recently, relied on it for rent. But Justice's closure is just a small part of a dangerous phenomenon that's been creeping into the spotlight even before the pandemic began: the retail apocalypse.
For years, retailers have been diverting more resources into building their online presence instead of investing in physical stores. Given the cost savings involved, that makes sense for them. But the pandemic has escalated the disappearance of well-known stores, leaving malls and shopping centers with more vacancies on their hands than they can handle.
Now to be clear, losing a tenant like Justice isn't nearly as detrimental as losing department store tenants -- a reality many malls are grappling with at present. Department stores commonly serve as anchors, drawing in customers and encouraging smaller retail establishments to sign lengthy leases. But the loss of Justice is still a blow and yet another reminder malls will soon need to get very creative if they want to avoid bankruptcy themselves in the wake of the pandemic.
In fact, just recently, two mall real estate investment trusts (REITs) -- CBL & Associates (NYSE: CBL) and Pennsylvania Real Estate Investment Trust (NYSE: PEI) -- filed for bankruptcy, and if stores continue to close, more are apt to follow. While some larger players in the mall space -- namely, Simon Property Group (NYSE: SPG) -- may not be directly impacted by retail bankruptcies immediately, if they continue to escalate, even the most financially sound mall REITs could take a hit. Investors will therefore need to brace for rocky times ahead -- and keep their fingers crossed that the pandemic wraps up soon enough to stop the bleeding.