Changes in culture and technology have been reshaping the way Americans acquire and consume goods and services for a generation. Indeed, long before the coronavirus, insolvency professionals and industry experts understood that the retail landscape was experiencing a dramatic transformation. Reduced foot traffic, online competition from Amazon and others, and changing shopping patterns all combined to place enormous strain on traditional retailers. To keep up, and to match the tastes of consumers in the age of social media, retailers and shopping centers have placed a renewed focus on strategies that will create a more valuable and enriching in-store experience for consumers. It has to be modern, it has to be fun, and – above all – it has to look cool on Instagram: no one takes a selfie at Sears.

Now, already in the midst what some have dubbed the “retail apocalypse,” the coronavirus and the havoc it continues to wreak on the U.S. and global economy could not have come at a worse time for struggling retailers. Even the savviest and most sophisticated strategies to drive traffic to stores can’t pay dividends if the governor has ordered your customers to stay at home. It is too soon to predict the full impact of the pandemic on the retail, entertainment, and dining sectors of the economy, but consensus has begun to emerge around several key expectations.

First, even a cursory glance at a newspaper makes it clear that there is likely to be a wave of bankruptcy filings in the next six months. Just last week, the largest shareholder of AMC Entertainment – the operator of more than 600 movie theaters in the U.S. – was forced to publicly refute rumors that the company had already filed for bankruptcy. J.C. Penney skipped an interest payment earlier this month and has hired restructuring advisers. The Cheesecake Factory announced at the end of March that it would not pay April rent on its nearly 300 North American locations. Neiman Marcus may file by the time you finish reading this blog post. But while there is sure to be a rash of filings, the uncertain duration of the current upheaval presents a novel challenge for retailers and their stakeholders. Companies in chapter 11 can shed debt, renegotiate leases and contracts, and seek protection from creditors. But they cannot bring customers back to their stores – they can’t even conduct liquidation sales – for as long as the pandemic keeps the country shuttered. Retailers considering bankruptcy will have to determine whether the tools the Bankruptcy Code offers can actually help alleviate the particular pressures they are facing.

Second, if and when the wave of filings does arrive, some commentators have expressed concern that it could overwhelm the U.S. bankruptcy system.^[1] Presently, bankruptcy judges and court clerks around the country are taking extraordinary, unprecedented measures to manage their existing caseload, conducting hearings remotely and trying cases from their homes. But, even assuming a return to in-court operations, there are a limited number of judges and a limited number of hours in the day, and thus a limit to the number of commercial bankruptcy cases the courts can administer at one time. Some have proposed that the federal government may need to provide liquidity to ailing businesses, which may stave off bankruptcy altogether for some but, as importantly, could be designed to stagger the number of companies filing for Chapter 11 at any particular time, “flattening the curve” of bankruptcy filings in much the same way that states have tried to slow the spread of the virus itself.

Finally, like the virus itself, the economic consequences of the pandemic appear likely to be most devastating for businesses that suffer from pre-existing conditions. Returning to the example of AMC Entertainment, the company announced a private placement that would add $500 million of liquidity, enough for the company to last until at least November of this year. On Monday, The Cheesecake Factory announced that it had raised $200 million through the issuance of convertible preferred shares.^[2] Even Macy’s, widely considered to be in a stronger financial position than its rivals, is reportedly in the process of trying to raise up to $5 billion in debt in order to avoid bankruptcy and strengthen its capital structure.^[3] Companies like these, with sufficient creditworthiness or collateral (or both) to access the capital markets, are far more likely to be able to weather the coronavirus storm. The fallout will be most severe for businesses that cannot take on any further debt to shore up liquidity that is eroding each day, particularly if they are unable to begin the process of reopening in the near term.