J.Crew, Neiman Marcus, JCPenney, Pier 1 Imports: These are just a few of the retailers that have filed for bankruptcy during the coronavirus pandemic.
Filing for bankruptcy doesn’t necessarily mean these stores are automatically going away, but sometimes, chains do end up closing up shop. And while you wait to see what happens to what may be favorite brands, you might be wondering how the bankruptcy filing affects you.
Because believe it or not, it might. If you’re a part of a chain loyalty club, have a store credit card, or have lingering returns you need to make, now’s the time to pay attention.
Bankruptcy doesn’t guarantee closure
A chapter 7 bankruptcy is a full liquidation of a business that’s in the red. But more often, we hear about chapter 11 business bankruptcies.
When a retailer files for chapter 11, it’s not admitting it needs to close. Rather, it’s acknowledging that its finances are in a bad place and the company wants to restructure its debt to make it more manageable.
Sometimes companies even go through the bankruptcy process more than once to restructure their debt a second time, which is sometimes referred to as “chapter 22.”
But it could be a while before a retailer calls it quits, if it ever decides to shut down at all.
“It’s very important to note what kind of bankruptcy a store has filed for, as well as what it’s planning next,” said Julie Ramhold, consumer analyst at DealNews.com. “Generally when stores file, they’ll acknowledge their next steps shortly thereafter if not at the same time.”
If store closures are announced, Ramhold said to take note of the details. Some chains may close some locations and allow other to remain, while some will close their physical locations but keep their online store.
Don’t hoard your loyalty points or gift cards
If a store has filed for bankruptcy and it looks like closures are on the way, take stock of any loyalty rewards or gift card balances you have hanging around. If you don’t spend them now, you may find yourself unable to redeem them at all.
“The deeper into the closing process [retailers] get, the less likely they’ll be able to accept these alternative forms of payment,” Ramhold said.
She explained how it worked when Toys“R”Us closed: it announced that customers would have one month to use any outstanding gift cards.
If a chain isn’t closing completely, you may still want to take advantage of any “free” money you have for that retailer. That’s because if the store locations closest to you are closed, it may not be worth the extra effort to visit a location that’s further away.
And even in 2020, not all gift cards or store credits can be redeemed online.
Think strategically about your store credit card
When a store files for bankruptcy, you can usually continue to use your store credit card, whether it’s for regular purchases or items bought during a liquidation sale.
But once the store is closed, there won’t be any benefit to having that credit card. And on top of that, it’s not like any remaining debt will go away for you. The company that administers the card (a financial company, not the retailer itself) will continue to send you billing statements and collect your payments.
If you have a store card and choose to use it during a liquidation, be sure to make a plan to pay it off ASAP to avoid the high interest charges.
Don’t be fooled by crappy liquidation sales
If the retailer closes its doors for good, you can expect an “everything must go” style liquidation sale, where you can usually buy anything that isn’t bolted down.
In that case, you can expect prices to drop in stages—a 20% discount, then 30%, and so on—as the store gets closer and closer to closing. Of course, as the weeks pass, inventory won’t be replenished, which means if you wait too long to get a good deal, you may miss your chance.
But if a retailer is closing some store locations or shifting to an online-only format, don’t expect fabulous sales. Yes, your local store may advertise a going-out-of-business sale, but it won’t be under the same pressure to unload its merchandise. Anything left over by its closing date can be sent to other locations that are staying open, or to the warehouse for online sales.
And regardless of whether the closure is one location or the whole chain, pay close attention to the return policy, if there even is one. Some locations may offer an abridged return period, while others may declare all purchases made after a certain date as final sale.