The weak get weaker and the stronger get stronger

This is a saying as old as the hills, but it is true, and it is becoming evident that this certainly pertains to the retail world. So many of the retailers we took for granted are going under.

CreditRiskMonitor has yielded 28 retailers with significant bankruptcy risk.

JCrew, Neiman Marcus, JCPenney, Chewy, Rite Aid, Pier 1, Express, Francesca’s, Stein Mart, The Container Store, Kirkland’s, Sears Hometown and Outlet, GNC, Build a Bear, and Overstock are few that we would be more familiar with here in Houston. This is quite a shock where some of these stores are concerned and others come as no surprise.

And that number doesn’t even include the full range of retailers that could go bust, as FRISK scores only cover companies with publicly traded stock or debt. Looking at Moody’s distressed ratings, there are an additional five retailers that aren’t listed in CreditRiskMonitor’s scores. Moody’s distressed ratings signify a high level of default, which could include restructuring moves like distressed debt exchanges in addition to in-court debt restructuring. The outlook indicates analyst expectations for future rating changes.  99 cents only, Academy Sports and Outdoors, JCrew, JCPenney, Pier1, Tom’s Shoes, Neiman Marcus, and Guitar Center. Some of these mentioned are in double trouble with the high risk of bankruptcy, as well as just going bust. Again there are some surprises, but overall amazed some have not gone under already.

And there are yet another six retailers not included in any of those lists that are among Fitch’s “Loans of Concern.” Fitch’s list is based on borrowers’ low credit ratings, market prices of their loans and adverse information or events around the company.  Serta, Petco, Joann Stores, and Blue Nile, Ascena Retail Group, and Iconix Brand Group. Some stores appear on all three lists.

All of this is to say highly elevated risk levels in major segments of the industry, especially for apparel retailers. The factors behind the risk are largely the same as they’ve been in recent years. Huge debt loads, heightened price competition, declining mall traffic, accelerated e-commerce adoption, and other tech changes.

JCPenney has been lowered to junk territory. They have over purchased and discounted themselves into a $300 million in interest. JCPenney simply has no wiggle room. The decline in mall traffic is not helping, stockholders earlier this year were so jittery that JCPenney felt inclined to declare they are not discussing bankruptcy, maybe they should.

Pier 1 is looking to close 70 or more stores and this is 15 percent of its footprint. Wayfair, Home Goods, Amazon, Walmart, and Target are very strong competitors and Pier 1 simply can’t compete with them. Retail analyst wrote that with the abysmal first quarter Pier 1 should go straight to liquidation, preserving as much value as possible for stockholders.

Ascena who owns The Loft and Ann Taylor among others is shutting down Dress Barn and considering selling Catherines and Lane Bryant in hopes of stopping the financial bleeding and it will drift into the penny stock category.

Neimans has cut a deal to sell its well performing My Theresa. There have been multiple lawsuits over MyTheresa with claims that Neimans moved it around within the corporate structure and out of the reach of lenders. To help save their neck, MyTheresa will need to be sold.

None of this is good news as no one likes to see someone go under. Retail analysts have said and still say it is the fault mainly of the retailer, they forgot to make shopping at their stores an experience, that is what customers are looking for, they did not jump on the e-commerce bandwagon soon enough and did not pay enough attention to what was happening until it was too late and then found themselves grossly in debt, from which it will take a miracle to get out of. These are publicly traded companies and there are some very unhappy stockholders. Well, the last quarter of the year is here and even with the holidays around the corner, this will not be enough to bring any of these stores out of debt or even close to it. Rumor has it that the retailers are not going to go all out as in the past for the holidays. Most of them can’t afford to.

The giants continue to do better and better, Amazon, Target, WalMart, Kroger, Walgreens, Costco are in the top 10 and they seem to know what it takes to flourish and do well and they continue to crush the competition.

Thank you Retail Dive