With the rise of online shopping and the economic slowdown of the past few months, many brick-and-mortar retail stores have faced a dilemma: how to continue operations with such small profit margins and such large debts?
Some companies have found that their best option is to file bankruptcy. Though bankruptcy is nothing new, it is becoming more and more common as retail businesses search for options to adapt to the new economic reality.
Bankruptcies and shutdowns throughout the state
Some of the United States’s most prominent retail corporations have filed Chapter 11 in recent weeks. Hundreds of stores throughout New Jersey will shut down. These include:
- More than 130 24 Hour Fitness gyms
- At least two Gap locations
- Ten GNCs
- Five Gordmans
- Sixteen Pier 1 Imports
- Seventeen The Children’s Place stores
But bankruptcy and shutdowns are not limited to national chains. Independent local retailers are feeling the squeeze as well. Although small companies do not have as much debt as large corporations, they also do not have as many assets. While many retail chains have chosen to close various store locations, independent retailers very rarely have this option.
The bankruptcy process for retail businesses
This leaves no other option for local retailers than to file bankruptcy. In some circumstances, business owners, partners or investors choose to file Chapter 7 personal bankruptcy. Generally, though, Chapter 11 and Chapter 13 are better suited to business bankruptcy. This is how they work:
- Chapter 11 facilitates the reorganization of a business’s structure, assets and debts. Partnerships and corporations usually file Chapter 11, but individuals can qualify for it as well.
- Chapter 13 allows petitioners who have a regular income to create a repayment plan over three to five years. At the end of this period, the court will discharge any remaining dischargeable debts.
The future is unclear when it comes to online shopping, the local and national economy and the success of brick-and-mortar retailers. Many stores will survive and thrive. For others, bankruptcy offers a path to a debt-free future.