Jacksonville-based discount retailer Stein Mart filed bankruptcy about 10 days ago. The company is another victim of COVID-19 and the widespread economic slowdown that the virus has caused. Millions of Americans are still unemployed or earning reduced wages. That means that they are not shopping as much as they were before the pandemic–in person or online.
People often wonder what happens when a store files bankruptcy and shuts down its retail outlets. Store closings and corporate bankruptcy filings affect many kinds of people in the local community: employees and customers and landlords.
Stein Mart started by laying off 100s of employees in its corporate headquarters on the Southbank of the St. Johns River in Jacksonville. It also furloughed over 8,00 employees in its retail stores and in its supply chain. These former employees can file for unemployment benefits as soon as they are laid off.
Those employees in Florida who lost their jobs because of Stein Mart’s bankruptcy can now get higher employment benefits than they would have a year ago. Now Floridians, unemployed due to COVID-19, will be able to receive an extra $300 a week in federal unemployment benefits on top of the unemployment assistance from the state.
This extra money will help them immensely, since Florida caps its state unemployment benefits at $275/week–no matter how much en employee earned prior to being laid off. As a local TV station noted: Florida ranks among lowest of states providing unemployment benefits. Even the New York Times had an article pointing out that, ‘Florida Is a Terrible State to Be an Unemployed Person’
Now, thanks to help from the federal government, those employees laid off because of COVD-19 will have a more realistic chance of paying their bills as they look for another job. Although, some economists are saying that temporary layoffs could become permanent during COVID-19 recession.
The closing of stores will also affect consumers, who often shopped at Stein Mart in order to buy name brand clothing at a discount. Prior to COVID-19, Stein Mart sales were slowing because of competition from online merchants. The company had initiated a plan to help reverse the slowdown in sales. A year before the virus appeared on the scene, the off-price retailer had looked for a buyer for its business. It had also launched the POPS Initiative (Path to Off-Price Success). POPS showed some success initially, but Coronavirus ended that.
With Stein Mart closing 279 retail stores, what can customers expect? First off, sales in the stores that are closing. A recent check of some local Jacksonville Stein Marts showed signs on stores claiming, “SALE: Everything is 10-30% off.” A quick check of the racks showed dress shirts to be marked down 10% and men’s suits marked down 30%. As time goes on, these percentages should get larger.
Anyone holding Stein Mart gift cards should use them immediately as they will soon become worthless. Stein Mart’s website FAQ section says that their gift cards can be used, but only through September 12. If they are not used by that date, they cannot be used at all.
Another area that the Chapter 11 filing affects is the ability to return items purchased at Stein Mart. There are very few laws when it comes to the customer’s right to return items purchased at a retailer. Some states have laws on the right to return purchases, and there is a federal regulation that applies to the right to cancel purchases that a consumer made during a door-to-door sale at her home. However, retailers can generally set whatever policies that want when it comes to purchases made in their stores. Stein Mart’s website says that: “All sales are final on merchandise purchased during our going out of business sale. Purchases made between June 12 and August 12 can be returned through September 12.”
Finally, any accrued Stein Mart Credit Card rewards points, or “Stein Mart SMart Cash reward certificates” must be redeemed by their original date of expiration or September 12, 2020, whichever date comes first.
Employees and consumers are not the only ones affected when a corporation files a Chapter 11 bankruptcy case. By closing stores, Stein Mart no longer has use for all of the retail space it has leased from commercial landlords. The essence of bankruptcy is the legal right to breach a contract without ramifications. Corporations that go bankrupt and close stores can “reject” leases under bankruptcy law. According to a blog post by Ryan Maloney, a partner at Jacksonville’s Jimerson Burr:
Rejection of the lease by the debtor tenant is essentially a decision to terminate the lease, and the debtor tenant doing so must vacate the leased premises. The landlord can then take back possession of the premises for purposes of re-leasing the premises, and may also assert a claim in the bankruptcy for damages resulting from the lease termination. However, the landlord’s claim will be treated as pre-petition unsecured claim sharing pro rata with other general unsecured creditors. In addition, the landlord’s termination damages claim will be capped in an amount equal to the greater of: (1) one year’s rent; or (2) 15% of the rent for the remaining lease term, not to exceed 3 years. Thus, by rejecting a lease with a significant remaining term, the debtor tenant may be able to substantially reduce liability for future rent under the lease. However, this cap applies only to future rent that would have been due under the lease but for the tenant’s rejection of the lease, with the landlord still able to claim unpaid rent prior to the bankruptcy filing as an additional general unsecured claim, and unpaid post-bankruptcy filing rent as an administrative priority claim.
If you have any questions about how corporate bankruptcies affect you, or if you are interested in seeing if bankruptcy is right for you, contact the Law Office of David M. Goldman, PLLC today for a free initial bankruptcy consultation. A Jacksonville Bankruptcy Lawyer can help you decide if filing bankruptcy is best for your future.