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Retailers Filing for Bankruptcy Keep Piling Up, May Set Record in 2017

Retailers Filing for Bankruptcy Keep Piling Up, May Set Record in 2017

Online shopping wins out.

Online shopping has led to many American retailers to file for bankruptcy at a fast pace, which could possibly set records for 2017. Fourteen chains alone have filed in the first three months of this year.

Turns out no retailer is safe when it comes to shopping online. S&P found that “discount shoe-sellers, outdoor goods shops, and consumer electronics retailers have all found themselves headed for reorganization.” Bloomberg reported:

Meanwhile, America’s retailers are closing stores faster than ever as they try to eliminate a glut of space and shift more business to the web. S&P blamed retailer financial struggles on their inability to adapt to rising pressure from e-commerce.

Urban Outfitters Chief Executive Officer Richard Hayne said as much on a conference call with analysts last month. There are just too many stores, especially those that sell clothing, he said.

“This created a bubble, and like housing, that bubble has now burst,” said Hayne. “We are seeing the results: Doors shuttering and rents retreating. This trend will continue for the foreseeable future and may even accelerate.”

S&P Global Market Intelligence has listed these 10 retailers that could possibly default this year. From Business Insider:

Sears Holdings
DGSE Companies Inc.
Appliance Recycling Centers of America Inc.
The Bon-Ton Stores Inc.
Bebe Stores Inc.
Destination XL Group Inc.
Perfumania Holdings Inc.
Fenix Parts Inc.
Tailored Brands Inc.
Sears Hometown and Outlet Stores Inc.

Last September, Fitch Ratings listed Sears Holdings, but also named Claire’s Stores Inc. and Nine West Holdings Inc at high risk for bankruptcy. Others at risk included True Religion Apparel Inc., 99 Cents Only Stores LLC, Nebraska Book Co., and Rue21 Inc.

Payless shoe chain filed for bankruptcy this month and will close 400 stores. Before them, HHGregg, Gordmans Stores, and Gander Mountain filed. Radio Shack “filed for Chapter 11 for the second time in two years.”

Sears Holdings has closed many stores, along with Macy’s and J.C. Penney. Others have decided to close stores and amp up their brand on the internet, according to Bloomberg:

Others are trying to re-emerge as e-commerce brands. Kenneth Cole Productions said in November that it would close almost all of its locations. Bebe Stores Inc., a women’s apparel chain, is planning to take a similar step, people familiar with the situation said last month.

“Today, convenience is sitting at home in your underwear on your phone or iPad,” Buss said. “The types of trips you’ll take to the mall and the number of trips you’ll take are going to be different.”

These numbers have led Bloomberg to predict retailers will close over 8,000 stores in 2017:

https://www.bloomberg.com/news/articles/2017-04-24/retailers-are-going-bankrupt-at-a-record-pace

Closure of stores obviously has an effect on the economy. Bloomberg continued:

The rapid descent of so many retailers has left shopping malls with hundreds of slots to fill, and the pain could be just beginning. More than 10 percent of U.S. retail space, or nearly 1 billion square feet, may need to be closed, converted to other uses or renegotiated for lower rent in coming years, according to data provided to Bloomberg by CoStar Group.

The blight also is taking a toll on jobs. According to Labor Department figures released on Friday, retailers cut around 30,000 positions in March. That was about the same total as in February and marked the worst two-month showing since 2009.

Top rated malls still perform pretty well. Oliver Chen with Cowen & Co discovered that Americans do “prefer physical stores 75 percent of the time.” So how does a company keep the customers?

The key is creating the right experience, whether it’s online or off.

Retailers should “refocus on customers,” Chen said. “Management needs to be fixated on speed of delivery, speed of supply chain, and be able to test read and react to new and emerging trends.”

[Featured image via YouTube]

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Is anyone on this thread old enough to remember when SNL did the routine: The Scotch Tape Store? They were making fun of the rash of single item retailers that were popping up at the time.

Things were so bad at the Mall that all the retailers were closing down. But sales at The Scotch Tape Store were skyrocketing because everyone needed Scotch Tape for their Going Out Of Business signs.

    notamemberofanyorganizedpolicital in reply to MattMusson. | April 26, 2017 at 2:29 pm

    You know the Obama Economy is bad when even 99 Cent stores are filing bankruptcy, and shutting down.

Years ago I used to go to Sears all the time – they had the best retail brand in the country. I went once about a year ago, just to see what they were still like, and the store was dirty, still laid out like it was 30 years ago, and a clerk was almost impossible to find. I walked out vowing never to go back, and it looks like everyone else in the country is making the same decision.

    amwick in reply to Tom Servo. | April 26, 2017 at 9:08 am

    My husband needed new socks, white everyday socks, so we went to Sears. He grabbed a package of Hanes (?) and the cashier said, quietly, you know this is $25? We left. Now a days our local Sears is mostly empty and quiet.

    On a happy note, all those vacated retail locations can be turned into shelters for refugees. /s

      Actually, strangely enough, an “abandoned” big-box or anchor store retail space with multiple levels is an ideal setup for a homeless shelter, with only a little modification:

      It has a reasonable amount of “floor” space that can be converted into mini-cubicles for individual “rooms” for basic shelter accommodations. It’s pre-wired for surveillance (so you can make sure nothing illegal is happening), it has bathrooms pre-built in (although there would usually need to be shower facilities installed), it has a “staff” area and offices, it’s usually modular in a manner so that you can address needs as they arise (need a classroom to teach life skills? Need an area for children to be watched / play while parent seeks employment? Simply build that space, either as a temporary setup, or semi-permanent). They’re also usually built in a manner that would allow for the installation of a reasonable medium-scale kitchen facility, or better yet, near-enough to a food-court facility that one of the unused food-Court restaurants could be converted into a cooking facility to transport the food.

      I’ve seen an abandoned mall turned into an auto dealership (Driver’s Village at the former Penn-Cann Mall in Cicero, NY). I could see a major Philanthropist turning an abandoned mall into a full-on homeless shelter if the area need was great enough.

      notamemberofanyorganizedpolicital in reply to amwick. | April 26, 2017 at 3:38 pm

      Amwick, as many Americans, I am buying off-retail more than ever.

      The quality of new goods is just not there. Definitely not there to justify their new, higher prices.

      Apparently this is what is sinking Sears and K-Mart.

      In 2 years’ time, some items sold in Sears had their everyday retail price DOUBLED! I’ve seen the same with K-Mart, charging double for items other mass merchandisers are also selling. Americans are just not buying it.

    The Friendly Grizzly in reply to Tom Servo. | April 26, 2017 at 6:18 pm

    About five years ago, I had an urgent need for tires. I had been forced off the road and cut three of my tires to a degree they could be driven on, but not safely.

    Oddly enough, Sears, of all people, met my need. The major tire chains needed one to two days to get them into stock. In desperation I called Sears. “They will be here in two hours.” Not only were they but the price was better than any other shop I called.

    While waiting for them to be installed, I went into the main store. The thing that hit me first was that musty smell one associates either with the closets and dressers of elderly women, or of merchandise that had been sitting for a very long time. Everything looked shopworn. One salesperson was taking clothing from the displays and fluffing it out to freshen it up.

    Back in the garage, the tire installation was taking a long time because the poor service bay workers had to share the ONE working air wrench available to them. The whole thing was just so darn sad.

    One factor that is killing off retail is the malls themselves. They are shelters for thug gangs, trouble-makers, and “urban outdoorsmen”. This is all due to the courts conferring “rights” upon them to hang out in private property, having declared such to be “the public square”.

    I’m not the strong man I used to be, so I avoid malls at all costs.

      And about six months ago I needed a tire in a size which was common as dirt twenty years ago but is like hen’s teeth now. I found that Sears, by some transient fluke, had some (and the Sears website said so) so I ordered a couple. After a few days Sears realized that no, Sears didn’t have them. Just a standard Sears SNAFU.

      Slightly later, by a similar fluke, Walmart did have some. The website said so. And they sold them to me with no undue excitement.

      This is why Walmart is now the retail powerhouse that Sears used to be. If Sears, even with the aid of computerized real-time inventory control, simply can’t get the product to the customer, it can’t survive.

Just bought my second refrigerator from a Sears Outlet store. Top of the line Samsung at 40% off the Lowes price. Previous one lasted over 20 years. This is a niche that Amazon can’t fill.

Sears also has one of the best parts websites. I don’t understand clothing retail. Never could figure out how clothing stores survived.

    UnCivilServant in reply to Petrushka. | April 26, 2017 at 11:16 am

    With online clothing retail, I can’t verify some of the details about the product that matter to me. (Actual size of shirt pocket, for example). Seeing the product in person allows for that. Though if you look at the floor space distribution, clothing stores have a target demographic – women prone to impulse buying binges.

    gospace in reply to Petrushka. | April 26, 2017 at 6:33 pm

    I’ve bought a few things at Sears outlet. All last years models, left over unsold in the supply chain, which is why they tend to have real discounted prices, unlike the stores in the outlet malls. And when Sears goes out of business, there’s no supply chain, and no leftovers from last years models. So no Sears outlets.

    I suspect that sometime in the next few years, Lowe’s, Home Depot, and other appliance sellers will carry nothing on display. You’ll instead view a lifesize hologram of whatever you want, be able to walk around it, view the inside, do everything except actually touch it. Displays are expensive. Get scratched and dinged. And end up being sold below cost.

    tom swift in reply to Petrushka. | April 26, 2017 at 6:41 pm

    I bought a nice refrigerator through Amazon. It was even delivered to my driveway. When I’ve bought stuff like that from Sears I used to have to pick it up at the store. Ugh.

I still shop locally, if I can get it locally at a reasonable price. But, it’s hard to argue with cheaper prices, and free two day shipping.

    rinardman in reply to rinardman. | April 26, 2017 at 9:53 am

    Okay, to the nit-pickers, not ‘free’, but very cheap. Less than I’d spend on gas if I had to drive to a store.

Sears was always about tools for me. Craftsman tools were made in the USA and had an outstanding warrantee, but now they are made in china like all the other junk stuff. No thanks.

The impact of on-line shopping only tells part of the story. What has led many of these chains to fail is their heavy debt burden associated with being acquired by private equity firms.

It used to be that PE firms would look for inefficient operations, buy them or invest in them, transform their internal cost structures thereby improving profitability and ultimately sell them for much more than they paid or taking them public again at a much higher valuation than was paid to take them private.

This worked for many investors and companies but the reality is that it is hard work. The past decade or so has seen a new model for many PE firms. Buy companies and saddle them with massive amounts of debt. Then, rather than using the proceeds from the debt offerings to improve operations or fund expansion, simply take that money and pay it out to the PE firms as a dividend thereby ensuring a profitably “exit” regardless of what ultimately happens to the company. PE make money… companies are left with a capital structure that leave little margin for error in the face of challenges.

Payless, Claire’s, EMS and many more on this list have all been through this cycle. One could argue that they would eventually fail anyway given macro trends but there is no doubt their deaths have been accelerated by the noxious PE practice.

Nothing in this article gives me confidence that these guys have the slightest idea what the crisis is about.

A “bubble”. Kee-rist, it’s nothing like a bubble. Idjit.

What should be cleaning up right now in local markets are clothing and shoes. Not stuff like crew socks—those are easy. But trying on, say, motorcycle boots by mail is not a practical way to do retail. If those stores are failing, somebody’s doing something wrong, and that something can’t be blamed on Amazon.

It’s so much easier to buy online.

Carlos Danger | April 26, 2017 at 12:45 pm

Shopping online might be convenient but when you need a new office chair you have to sit in it first to see if it feels right for you. Sure, I can order a new chair online but then I have to assemble the chair which for me being partially disabled is difficult. And if the chair is defective taking it apart and re-boxing it can be a nightmare. Same goes for clothing items, trying on a pair of shoes, that new jacket, do you need a XL or a reg sized coat? I’ve found myself buying two sizes of one item then returning the one that doesn’t fit and with most foreign made clothing, sizes are all over the chart.

    gospace in reply to Carlos Danger. | April 26, 2017 at 6:39 pm

    Not a chance I’d buy shoes on line. When New Balance shoes were made in Massachusetts, I could measure my feet on that shoe measuring thingie, order, and whatever came would fit. Tried on a pair labeled 9EEEE today. Over ½” long. Tried on an 8½EEEE. It was tight before I finished getting my feet in. Ended up with a Nike 9EE. The 3rd set of Nikes I tried on. The others labeled EE or EEEE were too tight.

Back in the glory days of the mall, I owned three bakeries, two of which were in malls. I was walking through the mall with it’s manager and I commented that there were an increasing number of vacancies. He answered arrogantly in “mall-speak”, “We prefer to call them ‘opportunities'”. I replied, “Then you have a hell of a lot of ‘opportunities’ here”.

The big mall near me is emptying out. Overbuilt in size back in the Eighties, there aren’t enough retailers left to even half fill it. Now, they
Just lost Macy’s. Ironically, while it’s becoming a ghost mall”, the outer edge of its parking lot continues to be lined with chain restaurants, bank branches, etc. It’s going to end up being a “doughnut” with an empty hole in the middle.

    notamemberofanyorganizedpolicital in reply to dcnrmn. | April 26, 2017 at 3:43 pm

    RE: “It’s going to end up being a “doughnut” with an empty hole in the middle.”

    Methinks that “doughnut” will crumble soon enough.

    Americans keep cutting back on eating out.
    That’s one way to improve your personal budget and your health quickly – stop eating crap outside the home.

The biggest problem with buying online is the colors. Different monitors display the same color code differently. It use to be the biggest cause of returned products… the color the customer received was not the color they saw on their computer screen.

There are more consumers buying more manufactured and agricultural goods then ever before in all of human history.

Retail is what connects the two. It should be booming for whoever can deliver the goods.

The online model is scalable. It can handle vast quantities of common items, and can also handle rare items, tiny quantities, specialized niche markets. General Electric can sell successfully online, as can the curio shop down on the corner.

But there is further development possible in online retail, currently unexplored. Amazon or something like it could direct a customer to a nearby brick & mortar operation which, according to computerized inventory, has the desired item in stock. That would take care of the things which really have to be inspected in person or tried for fit. I see plenty of room for development of both mail order and retail shops, but the online market will be essential to the expansion of both.

buckeyeminuteman | April 28, 2017 at 12:59 pm

If malls stopped letting hordes of loud, unsupervised teenagers laze about it would be more enjoyable to go. Oh yeah, and I save on sales tax by buying on Amazon.

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