A Snapshot of Financial Risk in the Retail Industry

Financial stress and bankruptcy risk in the US retail industry 2016

Increased discounting and the shift to shopping online continues to plague retailing.

Recent economic reports have been upbeat, and household spending has been a bright spot in the U.S. economy. But continued store closings and retailer bankruptcies show that legacy retailers continue to have a terrible time navigating these changes.

Which retailers are most at risk of failure, and which are financially sound? Here’s a snapshot of financial risk in the retailing world.

A Snapshot of Financial Risk in the Retail Industry

According to the FRISK® Stress Index, a measure of industry financial risk, bankruptcy risk is elevated compared to just before the last financial crisis. As a group, department stores have been hardest hit; sales are below where they were 16 years ago, and bankruptcy risk is up +588% for general merchandise stores, and is +186% higher for apparel and accessories stores. Risk is even +89% greater in the grouping that includes e-commerce, as shown below:

Financial stress and bankruptcy risk in US general merchandise stores 2016
Financial stress and bankruptcy risk in US apparel and accessories stores stores 2016
Financial stress and bankruptcy risk in ecommerce and US non traditional retailing 2016

Despite the upheaval in retailing, some companies have adapted to the consumer’s shift online, and are doing well. But of the 169 publicly held retailers we track, one third are at an elevated risk of bankruptcy. And many high risk companies don’t grab headlines, until they fail.

The FRISK® score is a financial risk score that predicts public company bankruptcy with 96% accuracy, using a 10-point scale. (A FRISK® “10” is the most financially stable , a “1” represents the highest bankruptcy risk, and under a “5” falls into the “red zone” of higher than average risk).

 Based on this proprietary financial risk score, the highest risk retailers as of August 15 include:

  • Sears Holdings
  • Toys R Us
  • Bon-Ton Stores Inc.
  • The Gymboree Corporation
  • 99 Cents Only Stores, Inc.
  • Container Store Group, Inc.
  • Claire's Stores, Inc.

Some retailers, like Sears, are rated a FRISK® “1” for reasons that are well known. But some of the riskiest may surprise you. The chart below shows companies at both ends of the risk spectrum, and many on the borderline:

2016 snapshot of financial distress and bankruptcy risk in the retailing industry

Changing financials can be hard to keep up with

The data reveals a wide range of financial condition by company, and many factors can cause financial risk to increase.

Shrinking revenues, substantial losses, high debt and weak operating cash flow are always a concern. But while the pattern of financial red flags leading to bankruptcy may be well known, changing financials can be hard to keep up with. For instance:

  • Over the last two quarters, JCPenney went from a FRISK® “1” to a “3”. Lower sales, debt and cash flow are still challenges, but financial risk has declined.
  • For Barnes and Noble, topline sales are still a concern, but there have been many positive changes and financial risk has improved. Financial risk improved from a FRISK® ”3” to a “5”.
  • On the other hand, specialty retail brands Restoration Hardware and Men’s Wearhouse slid from a FRISK® “6”, to a 3 -- a significant increase in financial risk.

As the retail examples above show, financial conditions vary greatly, and risk levels change. With thousands of companies in your receivables portfolio to keep track of, a reliable bankruptcy score plus automated monitoring of changing financial risk can help you to stay ahead of risk, and protect your company from loss.

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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 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 $150 billion in trade data on their counterparties every month, giving them visibility into their biggest dollar risks.