In Pursuit of Profit
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Source: CBInsights
The past year has raised eyebrows, but industry experts believe the retail sector is still healthy. New technologies, the changes of patterns of consumers and an excess of retail space is an indication are more a sign of evolution than of failure.
With 21 major retailers filing for bankruptcy protection, 2017 went down as the busiest year for filings since The Great Recession. “The trend toward retail bankruptcies, in other words, shows every sign of continuing this year and will probably be a fact of life into 2019. While some analysts see things differently—they predict either a slowdown in bankruptcies and store closures or even an outright reversal of fortunes—we do not find their arguments persuasive. The safest bet, as we see it, is that today’s generally positive economic trends will not be enough to save many of the decades-old chains that are nearing the end of their life cycles.” – ABL Advisor Why it Matters
The shift continues. There is a silent revolution happening as consumers’ buying habits silently and invisibly change. The Internet and mobile devices are the tools of choice. Some companies continue to grow and thrive as they have adapted… and they are said to be the reason for failures, though everyone has access to the Internet.
Listening to news about bankruptcies on one news feed and ‘sales growth success’ on another news feed can cause confusion. Getting more clarity from an experienced CFO is essential. It is good to know which companies are ‘quitting.’ There are more opportunities to hire new staff and possibly purchase equipment or supplies in a liquidation. This Year - 2018
Remington set to file for bankruptcy
Filing date: Mar. 18 A gun maker that Cerberus Capital Management LP spent more than a decade building into an industry giant is now on the brink of failure. Remington Outdoor's plans to file for bankruptcy should be complete by Sunday. A preset reorganization will be filed with the federal bankruptcy court in Delaware that will allow Remington to continue operating while it works out a strategy to pay back creditors and get the business back on its feet. Winn-Dixie parent plans to file for bankruptcy, close 94 stores Filing date: Mar. 15 Southeastern Grocers, the company that owns Winn-Dixie, said Thursday that it plans to file for bankruptcy and close 94 stores. iHeartMedia files for bankruptcy - CNBC.com Filing date: Mar. 15 IHeartMedia Inc filed for Chapter 11 bankruptcy on Thursday as the largest U.S. radio station owner reached an in-principle agreement with creditors to restructure its overwhelming debt load. Of the approximate 11,300 AM and FM radio stations in America, over 11% of them (iHeart with 850/Cumulus with 445) are now under the umbrella of bankruptcy. The Walking Company Filing date: Mar. 6 Walking Co. Holdings Inc., which has sold “comfort shoes” from around the world in the U.S. since 1991, filed for its second bankruptcy in less than a decade on Tuesday. Its troubles show how retailers face growing competition not just from online behemoths like Amazon.com Inc. and Zappos.com Inc., but the very brands they sell. Santa Barbara, California-based Walking Co. cited the loss of a contract from its largest vendor, UGGs-maker Deckers Outdoor Corp., as among the reasons for its bust. Tops Markets Files for Chapter 11 Bankruptcy Protection Filing date: February 21 Supermarket chain Tops Markets LLC filed for bankruptcy protection Wednesday, the latest regional grocery chain to look to restructure its balance sheet as consumers move to nontraditional food retailers. The Williamsville, N.Y., company, which operates about 170 supermarkets in New York, Pennsylvania, Vermont under the Tops name, said it plans to stay open during bankruptcy. It employs more than 14,000 people—most of whom belong to unions—and has lined up $265 million in loans to fund its business during the chapter 11 case. Bon-Ton Filing date: Feb. 4 Bon-Ton Stores has filed for Chapter 11 bankruptcy protection, the largest retailer to do so this year. The company, which operates about 260 retail locations, recently laid out plans to shutter more than 40 stores across the U.S. under its various banners (i.e., Carson's, Elder-Beerman, Herberger's and Younkers). Kiko USA Filing date: Jan. 11 Cosmetics retailer Kiko USA Inc filed for Chapter 11 bankruptcy protection on Thursday with plans to restructure by closing nearly all of its remaining stores in response to weak sales. Chief Executive Frank Furlan said in papers in Bankruptcy Court in Delaware that the subsidiary of Italy’s Kiko SpA that sells Kiko Milano-branded cosmetics needs to shutter the stores after suffering “extremely high operating costs and continually depressed profits in recent years” due to challenges from online sales and declining mall traffic facing brick-and-mortar retailers. A'gaci Filing date: Jan. 9 A'GACI, LLC, a leading fashion retailer in Texas, which filed for Chapter 11 relief on Tuesday, January 9th, will shortly begin discussions with landlords regarding 49 of its locations. In a court filing on Tuesday, A'GACI sought court approval to close up to 49 of its 76 operating stores but noted the Company's management team and its advisors continue to evaluate whether certain of these stores should remain open. Claire's Filing date: Coming Weeks The chain is reportedly preparing a bankruptcy filing. Bloomberg reports Claire’s has a debt load of $2 billion. - Fortune.com Apollo paid $3.1 billion to acquire Claire’s from the family of founder Rowland Schaefer and began expanding rapidly. It added about 350 stores between 2010 and 2013, with more than 2,700 globally by the time it filed plans that year to go public, according to a company document. But the chain struggled to remain profitable after the Apollo buyout, and Claire’s withdrew its initial public offering registration in early 2017. Last Year
Last year, total retail sales, including food services and motor vehicles and parts, grew 4.2%, adding $231.5 billion to the American economy. Even so, many well-known major retailers filed for bankruptcy and closed their doors.
Aerosoles - The New Jersey-based women’s footwear company filed for bankruptcy last year and announced plans to move forward with a “significant reduction” of its retail locations. It’s unclear how many of Aerosoles’ 88 locations will be affected. American Apparel - A fashion brand known for its edgy offerings, American Apparel shuttered all of its 110 U.S. locations last year after filing for bankruptcy. The brand has since been acquired by Canada-based Gildan Activewear, which acquired its intellectual property in an $88 million deal. Bebe Stores Inc., a women’s apparel chain with locations across the U.S., closed all of its remaining 168 stores by last May, days after it said it was exploring “strategic alternatives for the company” amid plunging sales. Cumulus Media might soon join iHeartMedia as a former leader of one of America’s once-beloved forms of entertainment. Late last year, Cumulus Media filed for bankruptcy protection as it attempted to restructure its debt payments, which had become too large to handle. Debts in the billions helped it expand and gain some ground in the competitive radio industry, but clearly not enough. - Reuters Foot Locker - The sports retailer told investors on March 1 that it would shutter about 110 stores in a push to focus on higher-performing store locations while also opening about 40 new stores. Foot Locker closed more than 140 stores globally last year. "We continue to prune the fleet of under-productive stores and open a few select, high-profile stores," CFO Lauren Peters said in a call with investors. Guess - Guess announced plans to close 60 of its struggling U.S. store locations in 2017 as part of a plan to refocus on international markets. Gymboree - The kids clothing retailer confirmed last July that it would close 350 of its more than 1,200 store locations to streamline its business and achieve “greater financial flexibility,” according to CEO Daniel Griesemer. J.C. Penney - The department store chain closed 138 stores last year while restructuring its business to meet shifting consumer tastes. The retailer also announced plans to open toy shops in all of its remaining brick-and-mortar locations. VITAMIN WORLD - September 2017 - With 334 retail locations and over $43M in debt, Vitamin World declared bankruptcy. The company cited supply chain and ingredient availability issues as contributing factors towards its decline. In late November 2017, Vitamin World won court approval to close over 100 stores and put the rest up for sale over the 2017 holiday season. See a list of bankruptcies here >
“For the brick and mortar retail, the issues can be traced to the excess supply of retail space per capita, which is 23.6 square feet in the U.S., as compared to 11.1 square feet in Australia and 4.6 square feet in the United Kingdom.
Digging a little deeper into the U.S. Census’ monthly and annual retail survey, there isn’t that much good news to shout about. Retail sales in the GAFO (general merchandise, apparel, furnishings and other) sector, the bread and butter of consumer retail representing the type of stores that fill our malls, shopping centers, and main streets grew only 1.4% in 2017, from $1.26b to $1.28b. That’s better than from 2015 to 2016 when it only rose 0.2%, but it’s hardly booming.” – Forbes - Retail's Bankruptcy Pandemic May Have Peaked, But It's Not Over Yet
Bankruptcy Filings Continue to Decline - “According to statistics released by the Administrative Office of the United States Courts, national bankruptcy case filings fell 0.7% for the 12-month period ending December 31, 2017, compared to the previous year. This is the smallest one-year decline in national bankruptcy case filings since 2010. In the Eastern District of Washington, bankruptcy case filings fell by 6.5% for the 12-month period ending December 31, 2017. Since 2010, the annual decline in local bankruptcy case filings has ranged from 13.5% to 5.5%, with the smallest one-year decline occurring between 2015 and 2016.” – US Bankruptcy Court
“Consumer and commercial bankruptcy filings declined in February due to continued high filing costs and changing market conditions, according to a news release from the American Bankruptcy Institute (ABI) and data provided by Epiq Systems Inc.
The American Bankruptcy Institute reports commercial filings declined from 2,866 last year to 2,795 in February 2018. Commercial chapter 11 filings, however, increased 4 percent from 407 in February 2017 to 425 in February 2018. ‘Amid rising interest rates and fluctuating market conditions, high filing costs continue to divert struggling consumers and businesses from seeking the fresh financial start of bankruptcy,’ ABI Executive Director Samuel J. Gerdano said in the news release. Looking at monthly bankruptcy filings, the total in February increased 4 percent from 54,619 in January, according to the ABI.” - ACA International Forecast
“The disconnect between traditional economic predictors and current industry realities has left retailers with moderate expectations for what’s to come in the year ahead. According to a mix of 100 retail CEOs, CFOs, and CIOs in our first Retail Compass Survey of CxOs, C-suite executives forecast a 3.2 percent increase in total sales for 2018.
Despite the rumble, this outlook is a signal of steady growth, not doom. In fact, more than half (53 percent) of retailers anticipate higher total sales this year compared to 2017 and, overall, online sales are projected to grow 6 percent.” - 2018 BDO RETAIL COMPASS SURVEY OF CXOS
“Another 54% of executives said they expect the level of bankruptcy filings to stay consistent with last year, which surpassed 2008 in retail bankruptcies. The year has already seen four major retail bankruptcies, including that of department store Bon-Ton. Others, including Claire's and Nine West, are said to be readying filings, and there are many more at risk. “ - RetailDive.com - 94% of retail execs expect as many - or more - bankruptcies in 2018
“Moody’s forecasts the default rate for 2018 at 6.34 percent for retail and apparel, compared to 2 percent for corporate America in general.
The credit agency lists Bon-Ton, Charlotte Russe and Charming Charlie among the most recent to default. And it predicts the rate will peak this month at 12.4 percent. ‘Our forecast translates to at least six retail and apparel issuers defaulting over the next 12 months, with most occurring in the first half of the year,’ Moody’s said. Of the companies that remain on Moody’s distressed list, many wound up there as a result of leveraged buyouts.” - Moody’s and Footwearnews.com Statistics and Data
Many times business bankruptcies are reported in the news or on investment wires. However, it can be easy to miss these articles if the company in question is not a large multinational corporation. Fortunately, there are other ways to find out if a company is bankrupt.
Statistics and trends about bankruptcies filed may be available online. For example, the UNITED STATES BANKRUPTCY COURT - Western District of Washington statistics are available here. Bankruptcy filings are available here. You can do a search for a specific company or in tables. American Bankruptcy Institute offers statistics here. Preparing
You’ll need sound counsel to understand your obligations regarding business closure notifications, contracts and debts. If you don’t have an attorney, ask your accountant or other trusted advisors for recommendations, or refer to the Washington State Bar Association’s Lawyer Directory.
Potential issues to discuss with your attorney:
Regardless of whether you invest in the future with new technology or prepare to close your doors (or file bankruptcy), you will need to have your bookkeeping records in order! We hope you will contact us because you are ready to ‘go bigger’ but we also want to be available to assist you when business is difficult.
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3/19/2018