Are E-retailers Really Less Risky Than Brick-and-Mortar?

The financial risk for internet retailers, compared to traditional, more physical retailing

With the recent news that Macy’s will be closing another 100 stores in 2017, we reviewed the financial health of all the retailers in our database.

In Part 1 of our series on financial risk in retailing, we took a snapshot of financial risk for the physical retail world. To learn which physical retailers are most at risk, read this snapshot of financial risk in the retail industry.

Today, we look at e-retailers. The results may surprise you.

Financial Risk: Internet vs. Physical Retailing

The consumer’s shift to online commerce has disrupted the entire industry. Online retail continues to grow, while many physical retailers are struggling to adapt.

Sales trends for internet vs physical retailers

Looking at the financial health of companies within e-commerce, it’s a mixed bag. Not surprisingly, online retail giants like Amazon are extremely healthy. But, the online business model is no magic bullet. There are online retailers with elevated financial risk, such as Land’s End and Wayfair, and physical retailers in excellent financial health.

The chart below shows the FRISK® financial risk score for a cross section of online retailers. Some are 100% e-commerce, such as Wayfair and Overstock.com. Others have a more traditional “physical” footprint but have been steadily growing digital sales, such as Wal-Mart, Staples and Macy’s.

Bankruptcy Risk Among Public Companies in E-retailing category, 2016

Recent Developments In Retailing

Some recent developments in the retailing industry:

  • A growing list of physical retail bankruptcies, such as Hancock Fabrics, Aeropostale and Sports Authority
  • Debt restructuring for debt-heavy Claire's, in an attempt to avoid bankruptcy
  • As many as one fifth of malls are projected to close, due to the reduced need for physical retail space
  • Financial challenges for Wayfair, Land’s End, Groupon, US Autoparts, and other “red zone” online retailers
  • Wal-mart’s acquisition of Jet.com, and strategic partnership with JD.com, to grow their online presence
  • Mounting store closings by Macy’s, Office Depot, Sears and other “traditional” retailers

How to Target Your Financial Risk

Compared to the physical retail world, e-retailers are doing better as a group. There’s no doubt that the physical retailing business model has been disrupted.

But in every industry, there are winners and losers. Your counterparty risk must be evaluated -- and monitored -- for each individual customer in your portfolio. Financial health changes constantly, as shown by a snapshot of the FRISK® score for selected retailers, shown below.

Financial risk for a select group of retailers

The FRISK® score is a proprietary financial risk score designed to help you focus on your riskiest companies. It measures public company financial risk on a 10-point scale, where a “5” and under is in the dangerous “red zone” of bankruptcy risk, and a FRISK® score of “1”  has the highest risk of failure.

With thousands of companies in your portfolio, a reliable predictive financial risk score, plus automated risk monitoring can make the difference between being blindsided and preventing loss.

For an in-depth look at the financial risk of public companies in your credit portfolio, contact us for a personalized risk assessment.

About CreditRiskMonitor

CreditRiskMonitor is a financial news and analysis service designed to help professionals stay ahead of public company risk quickly, accurately and cost-effectively. More than 35% of the Fortune 1000, plus thousands more worldwide, rely on our commercial credit reporting and predictive risk analytics for assessing the financial stability of over 58,000 global public companies.

At the core of CreditRiskMonitor’s service is its 96% accurate FRISK® score, which is formulated to predict public company bankruptcy risk. One of four key components calculated in the FRISK® score is crowdsourced subscriber activity. This unique system tracks subscribers' patterns of research activity, capturing and aggregating the real-time concerns of what are essentially the key gatekeepers of corporate credit. Other features of CreditRiskMonitor’s service include timely news alerts, the Altman Z” score, agency ratings, financial ratios and trends. CreditRiskMonitor’s network of trade contributors provides more than $135 billion in trade data on their counterparties every month, giving them visibility into their biggest dollar risks.