Over the last several years, much has been said about the demise of retail. Store closures have continued to outpace openings, foot traffic has been on a downward trajectory, and bankruptcies continue to loom with roughly 40 in the past two and a half years in the US alone.
2019 is not expected to be any different.
According to Fitch Ratings and reported in Chain Store Age, retail institutional leveraged loan defaults are forecasted at 7%. This is a 2.7% increase from the 2018 default rate, and 18% of Fitch's "Top Loans of Concern" are retailers, the highest of any sector measured. The retailers with the highest significant risk of default this year include, Neiman Marcus Group, Indra Holdings, Toms Shoes, Charlotte Russe, NYDJ Apparel and Iconix Brand Group. Also, according to the National Law Review, retailers on the watchlist for Chapter 11 bankruptcy include Gymboree, Guitar Center, General Nutrition Stores, Crew, Payless Shoes, 99 Cent Only, and Petsmart. Shopko recently filed for bankruptcy, JC Penny's has been downgraded, and due to Pier 1 Imports continued decline, they are facing being delisted from the NYSE.
Without question many retailers are thriving in the disruptive environment, especially those that are reimagining store designs, using analytics to inform decisions, and becoming more agile. Unfortunately, however, for those loaded up with debt, stale merchandise and declining foot traffic, the future could be tenuous.