Retailers On the Brink: A Bankruptcy Risk Update
There are only 335 more days until next Christmas. Based on recent trends, more than a few brick-and-mortar retailers won't make it.
The problem isn’t the consumer. Household income is up, and 2016 holiday sales were up +4.1% vs. the prior November-December, according to the NRF.
The problem, unfortunately, is more deep-rooted. Turns out, holiday sales growth was driven by auto sales and ecommerce. Brick-and-mortar retail, on the other hand, fell short.
Here’s a look at recent signs of financial stress in retail, and the next wave of retailers on the brink.
Signs of Retail Financial Distress
Growing signs of financial distress are everywhere:
- Foot traffic and same store holiday sales disappointed at a long list of retailers: Barnes and Noble, Toys R Us, Kohl’s … even Tiffany & Co., to name a few.
- Macy’s announced plans to close 100 stores and lay off 6.2K; Sears Holdings is closing 150 more stores.
- JCPenney plans to ‘right-size’ their fleet, and smaller fashion retailers like BCBG and Kenneth Cole are dramatically reducing their physical footprint.
- Heavily indebted retailers like J. Crew Group Inc. and Claire’s Stores Inc. are “delving into their loan agreements to find creative ways to raise or reconfigure their debt”, according to Treasury and Risk.
- Traditional mall chains like American Apparel and The Limited filed for bankruptcy, succumbing to competition from discounters and fast-fashion, too much debt, and other factors.
The ‘Curse of Private Equity’
According to retail consultant Howard Davidowitz, “Private equity has been a curse on retail.” The combination of changing retail environment and heavy debt load has been an undeniable recipe for disaster in the industry.
In addition to a long list of well-known and high-profile retail bankruptcies, there are many other retailer LBO’s that haven’t failed yet, but are extremely distressed: Claire’s Stores, Gymboree, and Wet Seal, to name a few.
While some may find ways to survive, in light of the industry’s secular problems, it looks to be an uphill battle.
Bankruptcy Risk: Check the FRISK® score …
In the face of tanking profits from retail operations, and Darwinian competition from ecommerce, which retailer might be the next to fail?
Our proprietary bankruptcy model identifies thousands of financially distressed public companies, and several dozen in retailing. The most distressed have a bankruptcy FRISK® score of up to 50% in the next 12 months.
As an example, keep your eye on these vulnerable retailers (or contact us about any other names you may be concerned about):
J. Crew Group Inc.
99 Cents Only Stores,
Sears Holdings Corp.
NOTE: For an updated look at Sears’ current bankruptcy risk and a financial analysis of their prospects for the remainder of 2017, click here.
Industry Distress: A Picture is Worth a Thousand Words
The FRISK® Stress Index shows the magnitude of financial distress in the industry.
As shown below, bankruptcy risk for the U.S. General Merchandise stores is up +461%, roughly 4 times the normal rate, compared to the period prior to the last recession.
Risk Assessment: Pinpoint Your Biggest Risks
Financial distress isn’t limited to retail. Risky public companies can be found in every industry, and the warning signs can be easy to miss.
Learn how to spot growing risk, and pinpoint your at-risk accounts.
Get in touch for a personalized risk assessment
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 more than 56,000 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 $140 billion in trade data on their counterparties every month, giving them visibility into their biggest dollar risks.