We’re only three months into the year and already the retail battlefield is littered with the corpses of nine brands that have filed for bankruptcy — the same number that filed in all of 2016.
Gordmans, hhgregg, RadioShack, Gander Mountain, BCBG Max Azria, MC Sports, Eastern Outfitters, Wet Seal, and The Limited have all filed for bankruptcy in just the first few months of 2017. At this rate, the industry is on pace to far surpass the high-water mark of 18 major retail bankruptcies set in 2009, notes CNBC.
Two more retailers may be joining their friends on the garbage heap soon as well: Recent reports have indicated that Payless and Bebe are both struggling and could head in the bankruptcy direction in the near future.
So why is 2017 shaping up to be so bad for retailers? Part of the problem — as we’ve said before and we’re bound to say again — is the lure of convenient online shopping.
However, CNBC brings up another factor that might play in to the recent onslaught of bankruptcies: Many of this year’s filings are from retailers that were purchased in the past by private equity firms, according to consulting firm AlixPartners.
When these firms agree to buy out retailers, they often use both equity and debt to do so, which can leave the company struggling with debt right off the bat.
Changes made to the bankruptcy code in 2005 may also be leading some retailers to rush into liquidating their inventories. Previously, retailers could remain in bankruptcy protection for more than a year, giving them time to decide on whether to keep or close locations. Now, they only have up to 210 days, leading some chains to make this decision too soon.
Things will only get worse, industry insiders say, amid rising interest rates that will make it hard to refinance those debts.
And while chains like Macy’s, Kmart, Sears, JCPenney, Game Stop, and Abercrombie & Fitch are all remaining afloat — for now — those companies have each announced store closures this year, paring back their physical footprint to keep their brands viable.
Closed stores may also have a tainting effect on otherwise strong retailers. If a mall or shopping center has too many vacancies, it means less foot traffic for the stores that do remain.
The figure of Amazon, as always, looms large for each and every one of these retailers. If they want to stay alive, they’ve got to compete with their own improved online shopping experiences, if they can. Because while you can surely buy a shirt from Macy’s online, at Amazon you could buy a shirt, a pallet of cat food, refills for your razor, and a tablet in one fell swoop.
What remains to be seen is how much further the bricks-and-mortar retail industry can sink. Many chain retailers spent the ’90s and early 2000s investing heavily in expanding their stores (and the size of those stores) while ignoring the coming threat of online retail. At some point, we’ll reach something akin to an equilibrium, but it could be awfully painful getting there.