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The retail industry is facing a potential wave of bankruptcies – here's why - CNBC

The retail industry is facing a potential wave of bankruptcies – here's why - CNBC

The retail industry is facing a potential wave of bankruptcies – here's why - CNBC
Jun 23, 2022 2 mins, 26 secs

The retail industry is up against a potential wave of bankruptcies following a monthslong slowdown in restructuring activity.

"Retail is in flux," said Perry Mandarino, co-head of investment banking and head of corporate restructuring at B. Riley Securities.

The industry had seen a dramatic pullback in restructurings in 2021 and early 2022 as companies — including those that had been on so-called bankruptcy watch lists — received relief from fiscal stimulus that offered cash infusions to businesses and stimulus dollars to consumers.

Including Revlon's filing, there have been just four retail bankruptcies so far this year, according to S&P Global Market Intelligence.

An analysis by Fitch Ratings shows that the consumer and retail companies most in danger of default include mattress maker Serta Simmons, cosmetics line Anastasia Beverly Hills, skin-care marketing company Rodan & Fields, Billabong owner Boardriders, men's suit chain Men's Wearhouse, supplements marketing company Isagenix International and sportswear manufacturer Outerstuff.

Still, advisors who have worked on retail bankruptcies in recent years believe, for the most part, that any looming distress in the industry shouldn't be as intense as the massive shakeout in 2020.

"What you saw in 2020 was a tremendous amount of restructuring activity getting pulled forward," said Spencer Ware, managing director and retail practice leader at Riveron, an advisory firm?

The latest retail sales data shows where consumers are pulling back the most.

"Consumers aren't just buying less stuff, they are shopping less, which means a loss of the impulse-shopping moments that are critical to retail growth," said Marshal Cohen, chief retail industry advisor at NPD Group, a market research firm.

In the first three months of 2022, consumers bought 6% fewer items at retail than they did in the first quarter of 2021, NPD Group said in a survey issued in late May.

Riveron's Ware said businesses had been racing to get in front of future rate increases.

If consumer spending slowed in that way, more retailers could be pushed into bankruptcy at a faster pace, Berliner said.

Either way, Berliner said the distress will be greater among smaller retail businesses, particularly mom and pop shops, that don't have as many resources to weather harder times.

Retailers from Gap to Abercrombie & Fitch to Kohl's have said in recent weeks that they have too much stuff after shipments arrived late and consumers abruptly changed what they were shopping for.

Ian Fredericks, president of Hilco Global's retail group, agreed that retail bankruptcies likely won't pick up until 2023.

That only means the upcoming holiday season, which every year is a vital span of time in the retail calendar for businesses to break even on profits, could be even more of a make-or-break moment for companies.

They would use this strategy in tough times in order to keep growing revenues quarter after quarter, albeit inorganically, Mandarino said


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