Buzz
J.Crew, Neiman Marcus, JCPenney, Pier 1 Imports: These are just a few of the well-known retailers that filed for bankruptcy amidst the coronavirus pandemic.
A bankruptcy filing doesn’t automatically spell the end for these stores, but in some cases, chains do close their doors for good. While you wait to see what happens to your beloved brands, you might be wondering how it affects you.
It could affect you more than you think. If you're part of a store loyalty program, have a store credit card, or still need to make returns, now is the time to pay attention.
Filing for bankruptcy doesn’t automatically mean a business will close its doors
A chapter 7 bankruptcy involves completely liquidating a business that’s financially troubled. However, chapter 11 bankruptcies are more commonly discussed when it comes to businesses.
When a retailer files for chapter 11, it's not necessarily declaring its closure. Instead, it's signaling that its finances are struggling and that the company intends to reorganize its debt for better management.
In some cases, businesses undergo bankruptcy proceedings more than once to restructure their debt a second time, which is sometimes referred to as ‘chapter 22.’
It may take a while before a retailer decides to close its doors, or it may never choose to shut down at all.
“It’s crucial to understand the type of bankruptcy a store has filed for and what their next steps will be,” said Julie Ramhold, consumer analyst at DealNews.com. “Typically, stores will announce their plans either shortly after filing or at the same time.”
If store closures are announced, Ramhold recommends paying attention to the specifics. Some chains may shut down certain locations while others remain open, and some might close their physical stores but continue operating online.
Don’t hold onto your loyalty points or gift cards
If a store has filed for bankruptcy and closures seem imminent, it's wise to use any loyalty rewards or gift card balances you have. Otherwise, you could lose the opportunity to redeem them altogether.
“As retailers move further into the closure process, the chances of them being able to accept these alternative payment methods diminish,” Ramhold said.
She shared an example from the Toys“R”Us closure: the company announced that customers had one month to use any remaining gift cards.
If a retailer isn’t completely shutting down, you may still want to use any “free” money you have with that store. This is especially true if the nearest store locations are closing, and traveling to a further one wouldn’t be worth the hassle.
Even in 2020, not all gift cards or store credits can be redeemed online.
Be strategic with your store credit card
When a retailer files for bankruptcy, you can typically still use your store credit card, whether it's for regular purchases or items bought during a liquidation sale.
Once the store shuts down, your store credit card will no longer offer any advantages. Furthermore, any remaining balance won’t disappear. The financial company that manages the card (not the retailer) will continue sending you bills and collecting payments.
If you decide to use your store card during a liquidation sale, be sure to pay it off as soon as possible to avoid accumulating high interest charges.
Don’t fall for misleading liquidation sales
When a retailer closes permanently, expect an 'everything must go' liquidation sale, where virtually everything not nailed down will be up for grabs.
During such sales, discounts will increase in stages—first 20%, then 30%, and so on—as the store nears its final days. However, stock will not be restocked, meaning that waiting too long for a bargain could mean missing out entirely.
If a retailer is reducing the number of stores or transitioning to an online-only model, don't expect impressive sales. Your local store might advertise a clearance event, but there won’t be the same urgency to sell off its inventory. Any leftover items after the store’s closing can be redirected to other open locations or sent to a warehouse for online sales.
Regardless of whether it's a single store or an entire chain closing, be sure to check the return policy, if one exists. Some stores may impose a shorter return window, while others might make all purchases final after a certain date.
