Will U.S. retail names dominate bankruptcy headlines in 2017?
loading...
Management |ANALYSIS
Barely one month into the year and the number of companies requesting bankruptcy protection has dramatically increased within the U.S. retail industry. A new report reveals the number of bankruptcy filings by U.S. retailers with at least 250 million dollars in liabilities nearly doubled in 2016.
The rate of Chapter 11 filings is often an indicator of an industry's health and that's bad news for retailers," said Ian Wenik, bankruptcy reporter at The Deal. "The number of large-liability retail Chapter 11 filings -- at least 250 million dollars in liabilities -- nearly doubled in 2016 and that trend shows no signs of slowing down."
Research conducted by The Street-owned The Deal.com shows how of the seven big retail filings in 2016, three chains suffered through large-scale closures (golf retailer Golfsmith International Holdings Inc., mall-based clothing retailer Aeropostale Inc. and casual dining chain Roadhouse Holdings Inc.) Meanwhile, Californian clothing chain Pacific Sunwear of California Inc., closed hundreds of stores in the months before its bankruptcy, leaving just ten to be shuttered while in Chapter 11.
Following other strategies, Sports Authority Holdings Inc. liquidated everything while American Apparel LLC accommodates to the idea of having to do the same if finally fails to find a buyer for its retail business at auction.
In the near future, the excess of available retail space in the U.S. and changing demographics could lead to some major retail filings in 2017, warn analysts.
“I think Sears Holdings Corp. is the big one,” said in the Deal’s report Thomas S. Onder of Stark & Stark PC, who represents landlords in retail bankruptcies like Golfsmith’s. “Sears is probably going to file sometime this year or early next year… they’re really a real estate holding company rather than just a retailer,” added Onder.
Teen and women apparel, the big ones to watch out for
“The retail market for teen and children’s clothing is the big one to watch out for,” Onder said. “The millennials are out of that generation now and in their 20s. It’s the largest generation since the baby boomers.”
Although retailers catering for teens and younger consumers top the list
of potential bankruptcies, womenswear names are also walking the line as
Limited Stores LLC kicked off what may be a busy year in debt restructuring
for clothing retailers in 2017, filing for Chapter 11 on January, 17. It
had closed all its 250 stores just the week before.
In a similar vein, other big mall-tenants such as Claire’s Stores Inc.,
J. Crew, Nine West Group Inc. and True Religion Apparel Inc. are fighting
against
“I’ve got a couple partners in my office who have been around for 30 years practising bankruptcy law and they’ve said that the recent bankruptcies that we’ve seen are a heck of a lot more orderly ones from 10, 15 years ago,” Onder said. “You actually have folks like Simon coming on in and trying to make sure there’s a graceful exit so they can plan how they’re going to wind up using the [retail] space. That still doesn’t mean everybody’s going to be holding hands, but we do think that’s a model that’s going to occur as we see what’s ahead.”
Aeropostale’s innovative survival strategy has opened the doors for other struggling retailers who might find a similar solution: at least 229 of its 810 stores were saved at auction from full-chain liquidation by a consortium that included two REITS that operate malls, General Growth Properties Inc. and Simon Property Group Inc.
As a result, Wall Street is keeping a close watch on publicly traded retail companies. Financial news website Marketwatch reports retailer's debt, sold in the bond market, now makes up a "significant portion" of Fitch Ratings "Bonds of Concern" list, informs ‘The Street’. Fitch’s list reveals that there's more than 4 billion dollars in retailers' debt that is in danger of default.
Photo:Wet Seal Web