J. Crew may be the most recent company to file for Chapter 11 protection, but the number of retail chains potentially facing bankruptcy has been steadily increasing since the pandemic began. According to financial experts, most will attempt to avoid making any major moves until after the pandemic has "ebbed". However, Forbes reports that their options may become significantly fewer in May as retailers have to pay landlords for their brick-and-mortar locations.

While it is true that the federal government introduced a $2.2 trillion stimulus package to help consumers, airlines, and small businesses, financial experts say it is unlikely to help retailers in the long run.

"I think a lot of people are going to be more hesitant to go into stores, specifically malls or more closed areas, until a vaccine comes out," Camilla Yanushevsky, a retail analyst for CFRA Research told USA Today. "We've already seen a big shift to e-commerce and that's just going to proliferate more for safety reasons."

Credit Rating Downgrades and Predicting Bankruptcy

Forbes has compiled a list of retailers who have seen their credit ratings downgraded by Fitch since the beginning of the pandemic. Credit rating downgrades indicate that financial experts don't have confidence in a company's ability to repay its's debts. According to Sarah Wyeth, retail and restaurant sector lead for S&P Global Ratings, defaulting on loans is often a sign or cause of upcoming restructuring or bankruptcy.

Dillard's (DDS  ), JC Penny (JCP  ), Kohl's (KSS  ), Levi Strauss (LEVI  ), Macy's (M  ), Nordstrom (JWN  ), and three parent companies including Capri Holdings (CPRI  ) of Michael Kors, Versace, and Jimmy Choo; Signet Jewelers (SIG  ), the parent company of Kay Jewelers, Zales, Jared, and Piercing Pagoda; and Tapestry (TPR  ), the parent company of Coach, Kate Spade, and Stuart Weitzman.

In addition, S&P downgraded L Brands (LB  ), the parent company of Victoria's Secret, and Gap (GPS  ). S&P also moved Macy's from its S&P 500 (SPY  ) to its S&P SmallCap 600 list.

According to Fitch's credit downgrade report, it expects these retailers to face a 90% fall in revenues with a limited amount of sales moving online when they reopen in mid-May, the current timeline. The credit agency said it expected these retailers to face double-digit reductions in revenue into 2021.

"Credit ratings agencies use a complex calculation that includes not just sales trends, but also when debt is coming due," BDO's David Berliner told Forbes. "A lot of lenders may not want to force liquidation so they will give loan extensions and kick the problem down the road because they can't handle that many distressed companies at once."

The Long Road to Bankruptcy Filing

This fear of creditor overload isn't the only reason why companies will likely try to put off filing bankruptcy until after the virus has slowed. According to Jim Van Horn, a bankruptcy attorney with Barnes & Thornburg, retailers - and their creditors - will want to avoid liquidation until going-out-of-business sales can occur.

"Once we turn the corner on COVID-19 or when there is some general consensus of when things are going to get back to normal, there will be a tremendous amount of bankruptcy activity," Van Horn told USA Today.

Another reason why companies may not be filing for bankruptcy immediately could be expected is the relationship between retailers and their landlords. According to Forbes, many retailer landlords are offering deferred payments and waiving fees. This is in large part due to the partnership held between landlords and their tenants. Ophir Sternberg, CEO of Lionheart Capital LLC, told Forbes he is giving his retailer tenants a break on rent in April and May.

As Sternberg put it, "their success is our success."

"We should all be working together. If we're going to come out of this stronger than we really have to work together," Sternberg said.

Chains already planning on liquidation because of the pandemic despite not being able to hold going-out-of-business sales include Papyrus, Art Van Furniture, and Modell's Sporting Goods. Forbes has compiled a full list of companies with 500 or more employees who have filed for bankruptcy so far in 2020. The list includes the three stores above as well as J.Crew, Bar Louie, Lucky's Market, Pier 1, and True Religion among many others.

Past Warning Signs

Downgraded credit scores aren't the only sign of trouble to come. Just being in the pandemic is enough to cause significant financial and practical issues for businesses. Chains like GNC (GNC  ), J.Crew, and Rite Aid (RAD  ) are facing major hurdles, according to USA Today, as are Forever 21, JC Penny, Sears and Kmart, Neiman Marcus, David's Bridal, and Ascena Retail Group, the parent company of Lane Bryant, Justice, Loft, and Ann Taylor.

Many of these retailers were facing financial issues long before the coronavirus pandemic began. Forever 21 already filed for Chapter 11 bankruptcy last September. In 2019, JCP closed 27 stores permanently and ended the sale of appliances and furniture. Sears and Kmart, meanwhile, have only been out of bankruptcy for a little over a year and have closed more than 3,500 stores in the last 15 years. Neiman Marcus has been considered "distressed" by the S&P Global Ratings since 2019 when they had to restructure their debt and is now officially considering bankruptcy.

David's Bridal is yet another retailer fresh out of Chapter 11 bankruptcy. Rite Aid failed to complete a merger with Albertsons in 2018 and now holds the third most debt of any retailer rated by Moody's Investor Services as distressed. Only Neiman Marcus and JC Penny hold more debt. Despite not having as much debt, Moody's listed GNC as among the most distressed retailers and considers them unlikely to be able to pay their debts.

J. Crew Files for Chapter 11 Protection

J. Crew is ranked sixth amongst all retailers holding significant debt and had to separate its J.Crew and Madewell brands into independent companies in December. The company filed for bankruptcy on May 4, 2020. Neiman Marcus, JC Penny, and Sears are expected to follow suit or take other drastic measures to stay afloat. Financial experts say these companies have too many stores, not enough workers, and are facing steadily falling market shares making their financial future even more uncertain.

"The retailers who were wandering around aimlessly pre-pandemic are going to be substantially less likely to muddle through than they were before," Director of retail studies at the Columbia Business School Mark Cohen told CNN.