Moody’s recently released a Sector In-Depth report titled “Retail and Apparel – US: Distressed Retail and Apparel Companies Are on the Rise. Who’s Next?” and its findings show that the retail bubble could soon be taking another major blow….Bankruptcy.
We all know that retail is a very volatile market. This factor causes many companies to turn to “financial sponsors” and hedge funds that, in return for the quick cash, offer highly leveraged funds causing many retailers to end up struggling under debt with the terms set by the sponsors. Due to these agreements distressed bond issuers in the U.S. retail and apparel markets are nearing levels that haven’t been witnessed since the Great Recession of 2008-2009, tripling in the past six years.
While the clock has been ticking on stores like Sears and J.Crew for quite some time, 17 other stores appear to have found themselves in the crosshairs of financial doom:
- Claire’s- 2,867 stores
- rue21- 1,200 stores
- Payless- 4,496 stores
- Nine West- 800 stores
- Gymboree- 1200 stores
- Not Your Daughter Jeans
- True Religion- 900 stores
- Indra Holdings Corp.
- Bon Ton Department Stores- 267 Stores
- TOMS Shoes
- David’s Bridal- 300 stores
- Tops- 126 stores
- Fairway- 10 stores
- 99 Cent Only Stores- 350 stores
- Charming Charlie- 350 stores
- Evergreen Saver’s- 330 stores
These 19 retailers including Sears and J.Crew, have more than $3.7 billion of debt maturing in the next five years, with about 30% of that total due by the end of 2018. If all of the retailers listed were to shutter their doors that alone would amount to the closing of more than 14,450 stores and leave hundreds of thousands of employees without jobs.
Aside from sponsored ownership, these apparel companies suffer from stressed liquidity, weak quantitative credit profiles, overly discounted merchandise, a decrease in traffic, challenged competitive positions, and erratic management structures. Whether or not any of these companies will be able to reverse the destruction remains to be seen. Based on the growing trend of retail bankruptcy and mall abandonment it seems highly unlikely.