Another Retailer Falls Prey To Bankruptcy

October 19th, 2017 by Trefis Team
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The bankruptcy filing by Toys R Us last month, that took many by surprise, was just the latest in a hard-hit retail industry. The company became another casualty of the rise of online shopping, as well as the proliferation of discount stores. However, this bankruptcy filing is among the largest ever by a specialty retailer; the company has about 1,600 stores and 64,000 employees. Furthermore, this news comes just when Toys R Us was heading into the holiday season, which accounts for a bulk of the company’s sales. Such a scenario does not mean everything is over for the company. Toys R Us secured over $3 billion in financing from lenders, including a JPMorgan-led syndicate. This financing, subject to court approval, would come as a relief to the suppliers, as it ensures they will get paid for their Legos and Barbies that are being shipped for the crucial holiday period.

More Bankruptcies Looming?

According to a new report by the S&P, the percentage of US retailers with high-risk CCC rating has doubled since the beginning of 2017. Currently, about 18% of retailers are in the CCC-range, including Neiman Marcus and Bi-Lo Finance, owner of supermarket chain Winn-Dixie, implying that an obligation is vulnerable to nonpayment and that the commitment is dependent on favorable economic conditions. Moody’s views 22 apparel and accessories companies as being distressed. Furthermore, companies such as J. Crew, Claire’s, and Nine West are already on the radar, as they have large debt loads, weak results, and looming payments.

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The future outlook for the industry also seems gloomy with a continued decline in mall traffic; the metric was down by about 5.6% in September. Furthermore, as millennials become the dominant shoppers, they tend to look for value.

Some of the biggest names in retail have closed down more than 5,000 stores this year, including Kmart, J.C. Penney, and Macy’s, and much more loom over the horizon. Moreover, as of June 2017, over 300 retailers had filed for bankruptcy this year, according to data from BankruptcyData.com, a rise of 31% from last year. While most of these are small stores, there are some big names in the list, including Gymboree, Payless ShoeSource, Rue21, RadioShack, Wet Seal, and The Limited.

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